Go Qwest, young man
Mending, maven and mystery lead investors back to the
By David Milstead
Rocky Mountain News
Saturday, June 10, 2006
A recent run in Qwest stock has shares of the Denver telco
trading at twice their level of just one year ago, even as
the market as a whole has declined during the past few
weeks. Qwest shares traded just above the $7 mark in late
May before breaking through in the past week and a half.
Heavy buying in the first two days of June put the shares
firmly above $7, and they continued inching up. On Friday,
they closed at $7.67. One year ago, they traded at about
Credit Qwest's continuing improvement, excitement about the
telecom industry as a whole, a little bit of market maven
Jim Cramer of TheStreet.com and CNBC, and a whole lot of
Qwest is continuing its long trip back from the brink. In
2002, concerns about its heavy debt load, significant losses
and accounting problems sent the stock down to barely more
than $1, down more than 98 percent from its all-time highs.
CEO Dick Notebaert and Chief Financial Officer Oren Shaffer
have cleaned up the company's accounting and chopped debt
and its interest payments. In the first quarter 2006, the
company reported a profit.
Notebaert and Shaffer now make the rounds of Wall Street,
telling a story about free cash flow -- that Qwest's cash
from operations, minus the money it spends on capital
expenditures and other special items, will grow $450 million
to $600 million above last year's $904 million mark.
Notebaert told investors at a conference May 22 that Qwest
wants "to take that cash . . . (and) reward our
The perception that Qwest is turning things around has
helped the stock rise steadily since early 2005. But it's
James Cramer, the frenetic money manager who hosts the
wildly popular CNBC show Mad Money, who deserves some
credit for recent gains.
When Cramer is bullish on a stock, it often gets an
immediate bounce in the next day's trading.
On May 18, Cramer called Qwest "a hated stock that no one
knows enough about."
"This stock is despised. It's cretinous. It's so disliked.
. . . I am here to tell you that the haters are wrong,"
Cramer said, according to an article on
www.realmoney.com, a financial
site that also features him.
Qwest is making a "fearsome comeback," Cramer said, but
analysts still mostly have "hold" and "sell' ratings on it.
As Qwest does better, he said, analysts will be forced to
upgrade, and more buying will follow.
The comments prompted some immediate buying: The stock
jumped 6 percent, to $6.57, on heavier-than-normal volume
It kept going from there, trading at $7 in the last three
days of May. But then the real action began.
On June 1, more than 35 million Qwest shares traded, nearly
three times the normal volume. On June 2, more than 44
million shares traded. At the end of the two days, Qwest
advanced from $7.01, to $7.45.
"I'm still scratching my head," said Donna Jaegers, an
equity analyst at Denver's Janco Partners. We thought,
'Maybe there's something going on -- a (merger).' Usually
when something runs up sharply, you think something's in the
But the only news from Qwest was an announcement of a new
partnership with Microsoft that "is nice, but is not
something that'll move earnings," Jaegers said.
Qwest spokesman Bob Toevs declined to comment, citing a
company policy against addressing market movements.
The entire telecom industry had a good couple of days in
early June, but none of Qwest's Bell peers -- AT&T, Verizon
or BellSouth, showed the heavy volume gains that Qwest did.
Neither did Level 3, another recent telecom comeback story.
Institutional investors often pour new money into the
markets in the first couple of days of the month, said
Lipper analyst Don Cassidy, but "it doesn't look like the
case in this situation. . . . The two-day volume in Qwest is
"It looks like somebody's taking a very large position. You
have to have very large, very concentrated buying to move a
stock like that (when the) overall market mood was not
The price gains have now made Qwest expensive relative to
some of its much larger peers. A Bloomberg financial review
suggests Qwest has a current price to free cash-flow ratio
roughly three times that of Verizon and AT&T and nearly 50
percent higher than BellSouth's.
Jaegers, who has a "sell" rating on Qwest stock, believes
investors are expecting too much cash flow and too much of a
"reward" from Qwest management. She says competition with
Comcast, whose cable territory overlaps more than half of
Qwest's service area, will force the Denver telco to spend
more on capital projects.
Qwest "need(s) to deliver that message, but they're not
"Jim is a great showman," Jaegers said, but his rapid-fire
assessments of stocks mean viewers are getting "knowledge of
a company an inch deep and a mile wide."
David Milstead is finance editor of the Rocky Mountain
News. He can be reached at 303-892-2648 or