Cincinnati Bell, Inc. (NYSE:CBB) Could Plunge After the Strong Rally
[[tagnumber 0]]Cincinnati Bell, Inc. (NYSE:CBB) stock could be starting a new rally after it jumped in two sessions and broke the upper end of the trading range. The company just announced plans to sell another portion of its interest in the CyrusOne partnership, though the stock could get a negative correction as it already looks overvalued.[[tagnumber 1]] [[tagnumber 0]][[tagnumber 3]][[tagnumber 1]] [[tagnumber 0]]Yesterday, CBB closed the market with another 3% gain at $4.09 for a share. Trading volume was considerably weaker than in the preceding session but still higher than the average for the stock with around 1.6 million traded shares.[[tagnumber 1]] [[tagnumber 0]]The break of the upper Bollinger band and all of the other technical indicators giving buy signals should attract more traders today, however, the rally could be followed by a severe plunge as the company‘s market cap has been pumped to over $830 million. That amount seems excessive given that CBB has negative equity of $600 million, heavy $1,761 million long–term debt and barely any cash to operate.[[tagnumber 1]] [[tagnumber 0]] [[tagnumber 1]] [[tagnumber 0]]On Monday, CBB filed its latest 8–K. According to the filing, the company plans to sell another 4,300,000 operating partnership units in the partnership CyrusOne LP. Unfortunately, the statement does not tell what will be the net proceeds from this sale, which might be crucial.[[tagnumber 1]] [[tagnumber 0]] [[tagnumber 1]] [[tagnumber 0]]CBB quarterly report reveals the company has already sold a portion of its partnership interest in April this year. From the total 26.6 million units held, the company sold back then 14.3 million for total proceeds of $426 million, reducing the ownership stake from 43% to 22%.[[tagnumber 1]] [[tagnumber 0]] [[tagnumber 18]][[tagnumber 1]] [[tagnumber 0]]Under a credit covenant, CBB is obligated to use 85% of any sales of CyrusOne for the repayment of debt, thus not much of this cash can be used to cover the operations. CBB expects its operations to be its main source of cash, however, operating cashflow in the first quarter of this year was $6.3 million compared to $37.8 million for the same period last year.[[tagnumber 1]] [[tagnumber 22]] [[tagnumber 1]]
