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UBS says Qwest may be a takeout candidate; shares up

UBS upgraded Qwest Communications International Inc. to "buy" from "neutral," and said the company could be a takeout candidate for one of the rural telephone operators, sending its shares up as much as 5 percent.

Reuters

December 15, 2009

 

The brokerage also cited the company's stable cash flow, improving revenue trends and attractive valuation for its upgrade.

"Despite its much larger size, we believe Qwest could become a takeover candidate for one of the rural local exchange carriers (CenturyLink (CTL.N) or Windstream (WIN.O)) looking to gain scale," analyst John Hodulik said in a note to clients.

With the rapid consolidation in the rural telephone market, where operators are having to merge in order to grow revenue, the analyst said.

In November, Windstream Corp agreed to buy Iowa Telecommunications (IWA.N).

Hodulik expects Qwest to be a prime beneficiary of a business market recovery as the company has about 41 percent of its total revenue exposed to the segment.

The analyst expects fundamentals in the business and wholesale markets to improve in 2010 after less than stellar results in 2009.

"We believe improvement in revenue trends will cause the Street to refocus on the cash, which we expect to remain strong through 2011," Hodulik said.

The analyst raised his price target on the stock to $5.50 from $3.80.

Shares of the company rose 21 cents, or 5 percent, to $4.29 in morning trade on the New York Stock Exchange.

(Reporting by Shrutika Verma in Bangalore; Editing by Ratul Ray Chaudhuri)