down - Qwest lands atop 4th-quarter heap
By Jeff Smith
Rocky Mountain News
Saturday, December 31, 2005
Qwest Communications' stock price continues to rise as the
company puts four years of legal woes behind it. Qwest led
the Standard & Poor's 500 in the fourth quarter with a 38
percent gain, closing Friday at $5.65.
Investors were buoyed by the Denver telco's sixth
consecutive quarter of stable revenues and its recent $400
million settlement of its largest group of shareholder
lawsuits stemming from its accounting scandal under former
CEO Joe Nacchio. In addition, a $3 billion debt refinancing
positions Qwest to possibly earn a small profit next year
after years of huge losses.
Qwest spokesman Chris Hardman said Friday the company was
pleased with the recognition.
"We've taken a disciplined approach to reducing debt,
improving liquidity and increasing financial flexibility,"
Hardman said. "We will continue executing strategies that
improve operations, strengthen our balance sheet and reduce
The fourth-quarter boom for Qwest saves what was, through
the third quarter, a down year. Qwest stock declined 7.7
percent from Jan. 1 through Sept. 30. All told, Qwest was
up 27.3 percent for the year, good for No. 21 for 2005 among
Colorado's bigger public companies.
Even with the sharp gain in the quarter, Qwest is just
barely above its split-adjusted 1997 initial public offering
price of $5.50 a share. And it's easier to be a top
performer when a company's stock is trading at relatively
For example, the No. 2 performer for the quarter, Express
Scripts Inc., a Missouri-based manager of drug benefits,
trades at $83.80 a share. That makes its 35 percent gain in
the quarter a more impressive performance than Qwest's.
Still, Qwest, the fourth-largest telephone company in the
U.S. with 40,000 employees and around $14 billion of annual
revenues, has had much to brag about recently.
The refinancing alone is expected to trim about $300 million
of annual interest expenses, and Qwest thinks it can
generate up to $500 million of additional revenue by hitting
industry market share averages in sales of high-speed DSL
Internet service and other products.
Analysts are more skeptical of the company's prospects.
Only three have issued buy recommendations, while 14 have
hold ratings and seven have sell recommendations, according
to Bloomberg News.
Part of the skepticism is due to Qwest's lack of its own
wireless operation -- instead reselling Sprint service. In
addition, Qwest's local telephone business in parts of its
14-state region is expected to come under pressure from
Comcast Corp.'s new digital phone offerings.
Donna Jaegers, a telecommunications analyst for Janco
Partners in Greenwood Village, said Friday the company faces
a bit of a dilemma.
"They sold Wall Street on the idea that they will be
churning out" all this cash flow next year, Jaegers said,
but Qwest also is seeking to counter Comcast's telephony
push by going into video services.
"And that takes money to invest," Jaegers said, which will
cut into the company's cash flow. "I think the stock will
be more mixed" in 2006, she said. In fact, Jaegers recently
predicted Qwest could pull back to the $4 a share level.
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