Buy Recommendation-CBeyond

CBeyond Inc. (NASDAQ-CBEY)
Valuation-$29.21
Price February 28, 2012-$7.94

CBEY is trading at a huge discount to our valuation.

Their last quarter (9/30/2011) sales were up 8% from the prior year to about $122.5 million, gross margins were 67% and they only lost $.04 per share ($1.1 million) compared to $.02 loss last year due to higher depreciation charges.

They don’t have a huge cash hoard (only $8 million) but they have been buying back some shares and have had heavy cap-ex requirements, which should abate somewhat in 2012.

2012 earnings guidance is about $485-$490 million in sales, $85-$90 million in adjusted EBITDA and capital expenditures of $55-$60 million resulting in free cash flow of $25-$30 million.

Over 85% of CBEY’s shares are owned by institutions and just 3% by management.
With over $450 million in annual sales, 67% gross margins, trading at a market cap of $244 million and at about a 70% discount to our valuation, we think this is a BUY.
Average trading volume is about 314,000 shares a day. There are about 30 million shares outstanding.

About CBeyond
Cbeyond, Inc. (NASDAQ: CBEY) is a leading provider of IT and communications services to more than 61,000 small businesses throughout the United States. Serving growing entrepreneurs, Cbeyond offers more than 30 productivity-enhancing applications including local and long-distance voice, broadband Internet, mobile, BlackBerry®, voicemail, email, Web hosting, fax-to-email, data backup, file-sharing, virtual private networking and cloud services. In addition, Cbeyond’s new Cloud Services division offers virtual and dedicated services and cloud PBX to small businesses worldwide. The Cloud Services division won Microsoft’s Hosting Partner of the Year for 2009 and 2010 in connection with Microsoft’s Hyper-V virtual server product. Winning over 50 awards for product innovation, growth and providing a quality customer experience, Cbeyond continues to focus on helping small businesses succeed and grow through high-performance technology, superior services and world-class support.

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