It's been several months since my Special Situations portfolio added to its position in Cincinnati Bell (NYSE:CBB), and I'm back to announce that I'm buying more. There have been a few new developments, and the fundamentals for Cincinnati Bell and its 68%-owned CyrusOne (NASDAQ:CONE) have improved. In short, the company is taking the right steps to create shareholder value.

Anatomy of a Special Situation
The snapshot is this: CinBell owns a huge stake in data center real estate investment trust CyrusOne, which it will sell over time to deleverage its own balance sheet. That stake is currently worth about $1 billion, which at today's price would cut CinBell's debt in half and rapidly increasing the telecom's free cash flow. While CinBell registered the shares for sale in March, it's holding on to them for the moment, since management thinks the market is not valuing CyrusOne properly. I have to agree.

In the latest quarter, the REIT grew revenue by 29% and EBITDA by 30%. Occupancy ticked up markedly to 89%. On a forward basis, CyrusOne trades at less than 14 times funds from operations and EV/EBITDA of less than 12. That's way too cheap for the opportunity presented here, as CyrusOne continues to expand rapidly to meet the exponential data growth from Fortune 1000 companies. A price around $27 or $28 would be more suitable for this highflier, and so I'm encouraged by CinBell management's discipline in not selling yet.

With its own improving fortunes, CinBell can afford to wait a bit for Mr. Market to realize the value at CyrusOne. The telecom announced in its latest quarter that it had agreed to sell its fading wireless unit, a move that leaves the wireline unit as the real driver of operations from here on out. Wireline revenue actually grew 2% for the quarter; EBITDA ticked up as well, while its Fioptics unit saw a robust 43% growth. Over time, I expect EBITDA to grow as the company's new investments in wireline bear fruit. I still think Cincinnati Bell can double from today's prices over the next couple years.

Foolish takeaway
A few new wrinkles -- all positive -- since my last purchase make CinBell a great candidate for more money, even though the company comprises nearly 8% of my Special Situations portfolio already. I'll add another $500 to the position later this week.

Interested in Cincinnati Bell or have another stock to share? Check out my discussion board or follow me on Twitter @TMFRoyal.

Jim Royal owns shares of Cincinnati Bell. The Motley Fool owns shares of Cincinnati Bell. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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