The Association of U S West Retirees



Up and 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 debt."

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 low levels.

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.

Qwest Communications
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