The Association of U S West Retirees



Qwest reaches $5.73 a share
Stock surpasses its 1997 IPO price
By Jeff Smith
Rocky Mountain News
Saturday, December 10, 2005

Qwest stock's turbulent ride reached a milestone this week, surpassing its 1997 initial public offering price of $5.50 a share for the first time in years. The boost -- shares are up more than 50 percent since September -- comes in the wake of stronger operations and a $3 billion debt refinancing that has the Denver telco poised to possibly earn a small profit next year.

The stock had been in a tailspin since spring 2002, although it briefly rebounded to hit $6 in early 2003 before sinking again.

Qwest Chief Financial Officer Oren Shaffer noted Friday the company's recent financial results reflected the sixth consecutive quarter of stable revenues, improved cash flow and deeper market shares of products such as high-speed Internet service.

The debt refinancing alone will shave almost $300 million off annual interest costs.

"I think (all of that) was the catalyst that made the markets and investors take notice -- 'Let me take another look at this Qwest story,' " Shaffer said.  Many of the factors had been in place for a while, "but it made them realize they were all starting to work ... that the team here has delivered on what they said they were going to do."

Shaffer said Qwest, which has been losing hundreds of millions of dollars a year, has an "opportunity" to post a profit "at some point" in 2006.

On Thursday alone, Qwest shares soared 6 percent to $5.59, with 31.6 million shares trading hands, more than triple recent volumes.  Qwest went up 14 more cents to $5.73 on Friday, again on brisk trading.

Internet message boards included some speculation about whether an acquisition is in the works.  But the lift in Qwest's stock price coincided with road trips this week by Shaffer to New York and Chief Executive Dick Notebaert to Boston to meet with analysts and major investors.

Some analysts warn there is little additional upside to Qwest's stock until the company proves it can grow, not just stabilize.

"Qwest will be hurt by the company's lack of significant long- term growth opportunities," Christopher King, a telecommunications analyst with Stifel Nicolaus, wrote this week.

King and many others see Qwest's future growth constrained in part because it doesn't own its own wireless operation, instead reselling Sprint service, while it continues to lose traditional home landline business.

Likewise, the company's major video strategy at this point is to resell DirecTV satellite TV services, although Qwest recently signed a cable-TV franchise agreement in Salt Lake City and is seeking to do the same in other major markets in its 14-state region, including Denver, Minneapolis-St. Paul and Seattle.

(Qwest already offers cable-TV-like services in Phoenix, Omaha and parts of Douglas County, but totals just 50,000 video customers compared with 90,000 through its DirecTV partnership.  Companies generally can make more money if they operate their own network, rather than resell someone else's.)

Adjusted for stock splits, Qwest stock went public at $5.50 a share in June 1997 and rode the telecom bubble to a peak of $66 a share on March 3, 2000.

Qwest shares started sliding as the telecommunications industry weakened and the company's still rosy financial numbers came under increased scrutiny and skepticism.  It hit a low of $1.11 in July 2002.

The company has since erased $2.5 billion of profits and $2.5 billion of revenues from 1999-2001, and paid the Securities and Exchange Commission $250 million to settle civil-fraud charges.

Nacchio is fighting civil-fraud allegations and remains under criminal investigation, likely facing insider trading charges.

Qwest stock prices

Initial public offering: $5.50 (adjusted for splits) on June 24, 1997

High: $66 on March 3, 2000

Low: $1.11 on July 9, 2002

Friday's close: $5.73