Deutsche Bank Gives Earnings Preview On TW Telecom

Deutsche Bank expects TW Telecom TWTC to maintain solid top-line growth in 1Q as strong booking momentum from last year and the absence of churn headwinds seen in 2H10 should offset what is typically a seasonally weak quarter. While 1Q margins are likely to be contained due to a seasonal increase in employee related expenses, Deutsche Bank expects such pressures to decrease as it moves through the year, leading to further margin expansion. Based on potential upside to 2011 and long term estimates, Deutsche Bank maintains its Buy and $22 PT. Despite what tends to be a weak quarter of sequential revenue growth, Deutsche Bank is not forecasting a dip in 1Q as it no longer expects trends to suffer from the churn related issues seen during 2H10. Deutsche Bank expects seasonal margin pressures from payroll taxes and other employee expenses to amount to a $3M sequential increase in costs. According to Deutsche Bank, 1Q results have been encouraging. For example, 1Q enterprise revenue growth at Verizon was driven by strength in strategic services, which increased by 12.8%, its highest rate since 3Q08. At AT&T, strategic services grew 18.8% YoY, the strongest growth rate in 2 years, indicating early signs of macro recovery. TWTC is trading at $21.87