Infonet Stock Dealt Another Blow

Shares of El Segundo-based Infonet Services Corp. plunged 15.6% Friday--the second-largest percentage loser on the New York Stock Exchange--because of a technology sell-off and larger-than-expected losses of a competitor.

Infonet shares dropped $2.25 to $12.19, putting the year-to-date slide of its stock at 54%. The company, which manages an international data communications network, first sold shares to the public at $21 in mid-December and peaked at $33.69 on March 3.

Infonet was a victim of a Wall Street blood bath in technology and telecommunications stocks, as well as the deteriorating financial performance of a main rival, Equant of Amsterdam, analysts said.

Shares in the company, whose data network is used by 2,600 corporate clients internationally, have fallen despite winning two important contracts that could generate a combined $2 billion in revenue over the next five years, according to Daniel Fletcher, an analyst with Lehman Bros. in New York.

Earlier this month, Infonet inked a deal that will allow Deutsche Telekomm, Europe’s biggest phone company, to resell its services. In January, Infonet and San Antonio, Texas-based SBC Communications, the nation’s largest local phone company, reached an agreement in which SBC would act as a sales agent marketing Infonet services to multinational corporations in the United States.

“Everything is going fantastic at this company,” said Kevin Roe, an analyst at ABN Amro in New York. Roe, who said Infonet is one of his top picks, believes the shares will bounce and could hit $35 in 12 months. “It is executing its business plan above expectations since its public offering,” he said.

What’s gone wrong, Roe said, is that Infonet “is caught in the downdraft caused by investors moving from telecom and technology into other areas.”

That’s made worse by the declining fortunes of Equant, which surprised Wall Street when its first-quarter loss widened to $24.6 million from $7.1 million a year earlier. Equant shares fell by 34% this week and closed down $6.19 at $40.69 Friday on the NYSE. It is off 64% since the start of the year.

“Infonet suffers from guilt by association, but when you look at its customer wins and the revenue that will be coming, you will see very healthy growth,” Fletcher said.

Analysts said one factor that hurt Equant was a decline in pricing for network services.

Infonet has not seen any price erosion, said Morgan Molthrop, a company spokesman. Infonet lost about $30 million during the first three quarters of its fiscal year but is giving the nod to analysts’ estimates that it will be near break-even in the fourth quarter when it reports June 12. Revenue for the year will hit about $480 million, compared with $302.9 million last year. Revenue looks to grow at a compound annual rate of 45%, Infonet said.

Expenses, however, are expected to rise. Infonet said Tuesday it would more than double its capital expenditures to about $350 million in the coming fiscal year.

“They have to do that because the demand for their services is coming in faster than what they first expected. That means they will have more network spending,” Roe said.

The company will fund the spending out of the $750 million it raised in the December offering.