Covad shares soar on new high-speed deals

The upstart telecom firm that specializes in high-speed Net access through DSL watches its shares soar on news of new digital subscriber line deals.

2 min read
Stock in Covad Communications surged more than 20 percent today to a new high after the upstart phone company signed high-speed Internet deals with PSINet and Frontline Communications.

Pacific Crest Securities also initiated coverage on Covad, a firm that provides digital subscriber lines (DSL), with a "buy" rating.

Shares spiked 46 percent in midday trading before closing at 100.5, an increase of more than 23 percent. The gains eclipsed the company's previous 52-week high. Shares have traded as high as 89.25 and as low as 31 since the company's public offering in January.

The company signed a deal with PSINet, an Internet service provider, under which PSINet will market and resell Covad DSL.

Analysts said PSINet has a strong direct sales force of about 650 sales representatives, which will double Covad's sales efforts.

"This means there are more feet on the street out there selling Covad DSL," said Brent Bracelin, a communications research analyst at Pacific Crest. Bracelin expects Covad's revenue to increase to $55 million this year, up from about $5 million in 1998.

PSINet shares gained 16 percent to close at 60.5, a new 52-week high for the company.

Covad also signed a similar DSL deal resale today with Frontline Communications, an ISP primarily serving the northeastern United States. "This is the next best thing to being able to deliver the service ourselves," said Frontline chief executive Stephen Cole-Hatchard.

Stock in Frontline closed nearly 23 percent higher today at 16.875, also a new high.

Covad was the first of the national data-focused competitive local phone companies to go public. Following in Covad's footsteps, rival Rhythms NetConnections had a successful IPO last week. Rhythms' shares more than tripled on its first day of trading, and today gained 9 percent to finish at 79.5625--a 52-week high.

Covad and Rhythms lease copper telephone lines from the Baby Bells to deliver high-speed Internet access and remote LAN access via DSL for small and mid-sized businesses.

"DSL certainly seems to be the hottest section in the telecom sector," Bracelin said.