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Go Qwest, young man
Mending, maven and mystery lead investors back to the telecom trail
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 $3.74.

Credit Qwest's continuing improvement, excitement about the telecom industry as a whole, a little bit of market maven Jim Cramer of and CNBC, and a whole lot of mystery.

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 shareowners."

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, 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 May 19.

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 works."

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 just striking."

"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 particularly bullish."

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 yet."

"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,2777,DRMN_23908_4765149,00.html