Time Warner Telecom Upgraded

We upgrade our rating from Hold to a Buy for Time Warner Telecom (TWTC), a leading provider of managed voice & data networking solutions for businesses, as the company has been successful in transforming its offerings as a diversified network services provider to large enterprises and lowering its business dependence on telecom carrier customers.

TWTC's first quarter 2008 financial results were significantly above our estimates. The company continues to generate sustaining revenue from enterprise customers, primarily from sales of Ethernet and IP-based services. Growth prospects for the company remain firm as a result of massive demand for bandwidth to implement converged IP-based networks.

Since TWTC is still in a net loss position, it is not appropriate to value the stock on a P/E basis. With respect to other selected valuation metrics, the stock is trading at a premium over its peers. We believe that the improvement in revenue is the primary catalyst for this valuation premium. In addition, the recent progress towards integrating Xspedius Communications and the restructuring of loan facilities has improved investors confidence.

We also expect improved financial performance as the company continues to demonstrate successful expansion of business customers for its telecom services. We upgrade our rating to a Buy with a six-month price target of $25 based on a forward EV/EBITDA multiple of 12.5x our 2008 EBITDA estmates, a premium to the peer average in consideration of strong demand for the company's Ethernet and IP-VPN services and improved management guidance and business visibility.

WellPoint Keeps Itself Intact

WellPoint, Inc. (WLP) is the largest publicly traded commercial health benefits company, and the largest of the Blue Cross Blue Shield (BCBS) plan providers (in terms of membership) in the U.S. The company reported 1Q08 net income of $588.1M (down 25% y/y), or EPS of $1.07 per share, which included net realized investment losses of $0.06 per share and was management's lowered guidance of $1.16-$1.27 issued in early March.

WLP also posted a 1Q08 benefit expense ratio of 85.1%, up 200 basis points year over year, which management attributed almost entirely to its Senior business. Our Buy recommendation remains intact at current levels.

We have valued WLP on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the managed care sector. Our $69 price target is derived using a P/E multiple of 12.5x our revised FY08 EPS of $5.53 following management's lowered FY08 guidance.

Expect Sprint to Take Awhile

Sprint Nextel (S) is a leading provider of business and wireless communications services in the U.S. The company is experiencing lower revenue and customer retention issues that have impacted overall financial conditions.

A new management team at the company has suggested that operating improvements may take several quarters to transcend to financial results.