DSL.net gets more mileage out of IBM deal

2 min read

DSL.net continues to ride the momentum of its recent agreement with IBM as its shares jumped another 2 5/8, or 42 percent, to 8 27/32 Wednesday. The stock has more than tripled in the past week.

On Tuesday, the New Haven, Conn. communications services provider shot up 107 percent after announcing it will provide its digital subscriber line services to IBM's small business customers.

DSL.net (Nasdaq: DSLN) shares fell to a 52-week low of 2 3/8 last week after a pair of analysts downgraded the stock following its second-quarter earnings report.

In the quarter, DSL.net posted a net loss of $27.3 million, or 45 cents a share, on sales of $3.8 million.

Regardless, the stock's run-up this week can only be classified as an optimistic reaction to the IBM deal.

"What's going on is there's a lot of retail buying of DSL.net right now following the IBM news," said Adam Giansiracusa, an analyst at Frost Securities. "The stock's been so beaten down lately people were looking for some kind of news to bring it back."

Under terms of the deal with IBM (NYSE: IBM), DSL.net's DSL service will be part of IBM Small Business WebConnections, providing high-performance connection to the Internet with guaranteed access speeds up to 25 times faster than dial-up.

Giansiracusa said DSL.net executives haven't revised their sales or earnings models in the wake of the deal.

"They're not anxious to quantify the IBM contribution because, frankly, they don't know what it's going to amount to yet," he said. "It will likely contribute to its fourth-quarter sales and then perhaps they'll guide their models upward from there."

First Call Corp. consensus expects DSL.net to lose 56 cents a share in its third quarter and $1.94 a share in the fiscal year.

The stock moved up to a 52-week high of 32 9/16 in February.

Six of the eight analysts tracking the stock rate it either a "buy" or "strong buy."