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Level 3 Communications, Inc. Message Board

  • jettadiesel2000 jettadiesel2000 Jan 19, 2005 6:41 PM Flag

    Qwest (edited for space)

    Financial sources are hinting that Qwest Communications International Inc. (NYSE: Q - message board), with its incredible debt load and lack of hyper-growth businesses, is shopping for a buyer for some of its business units, or perhaps even putting the whole company on the block.

    Several have pointed to recent stock activity as a sign that Wall Street is expecting something to happen with the company, especially given that there haven't been many other stock catalysts of late.

    Of the four RBOCs, Qwest is the least healthy financially. It's the only one that has a total debt level ($17.1 billion) that is more than 120 percent of its revenues for the past 12 months ($13.87 billion). None of the other RBOCs -- SBC Communications Inc. (NYSE: SBC - message board), BellSouth Corp. (NYSE: BLS - message board), and Verizon Communications Inc. (NYSE: VZ - message board) -- are hauling around that kind of debt relative to their revenues.

    Some in the financial community believe that Qwest is looking to cut debt by dropping parts of its business or even selling itself outright. Qwest's long-distance business has been rumored to be on the block for months. �I think that they would sell it if they got the right price,� says Legg Mason Inc. analyst Brad Wilson. �But finding a buyer is going to be tough.�

    Wilson points to the fact that the long-distance business has been viewed by investors as a cash drain on the company. By selling those assets, Qwest could stop the bleeding and begin to pay down its debt.
    But who would be interested in pursuing Qwest�s assets if they were to hit the market?

    And, SBC makes sense because many of its territories are right next to the states where Qwest has assets. But Tavis McCourt, senior telecom analyst at Morgan Keegan & Company Inc., says the RBOCs "haven�t shown any interest in consolidating, and they�re more interested in growing internally with their FTTP/FTTH initiatives.�

    Level 3 Communications Inc. (Nasdaq: LVLT - message board) is mentioned by several analysts as having an interest in a small slice of Qwest's assets. �Level 3 is a big consolidator, so they�d be on top of the list,� says McCourt. Of course, Level 3 has debt concerns of its own. The company's total debts are 142 percent of its revenues for the past 12 months.

    Calls to Qwest seeking comment were not returned.

    Whether Qwest's strategy is to carve itself up or just chip away at its debt, the only consensus in the financial community seems to be that there's more Qwest available than there are buyers. �I just don�t see a buyer across the board,� says Wilson. �Unless it is put out there at a really cheap price.�

    "Qwest shares have soared 60 percent over the past four months, likely on increased optimism over the company's ability to improve its cost structure," wrote Legg Mason's analysts in a note previewing the carrier's next earnings report (due February 15). "Further upside is unwarranted, in our view, without greater demonstrated cost cutting and cash flow expansion."

    � Chris Somerville, Senior Editor, Next-Generation Services

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