Analyst: Neustar Likely To Lose FCC Contract

Neustar Inc NSR is likely to lose a key contract for the administration of phone number portability, an analyst said Thursday.

Neustar shares are off 14 percent since a draft recommendation was published Wednesday by the Federal Communications Commission which recommended picking Ericsson's ERIC Telcordia unit rather than Neustar for a renewed contract.

Deutsche Bank's Nandan Amladi put the chances at 75 percent that the draft recommendation will get adopted over Neustar's objections.

Alternately, Amladi laid odds of 25 percent that a dual-vendor contract that includes Neustar might get negotiated.

In the year ended December 31, the contract amounted to 49 percent of Neustar's $963.6 million in total revenue. The current contract expires in June.

Amladi cut his price target on Neustar 26 percent to $22, maintaining a Hold rating.

"There's a real possibility that a black swan scenario plays out," Amladi said, referring to unlikely events with outsized consequences.

Neustar management in recent quarters "has shifted its messaging" away from the registry business and toward its security and analytics segment, according to Amladi.

Profitability in the segment, where it projects "double digit" revenue growth, is "below corporate averages" because of relatively high services content, according to Amladi.