Small U.S. telecom stocks mixed after earnings
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By Jessica Hall
PHILADELPHIA, Aug. 2 (Reuters) - Shares of Global Crossing
Ltd. and McLeodUSA Inc. fell sharply on
Thursday after the emerging telecommunications companies
slashed their growth outlooks and analysts cut their investment
ratings on the stocks to "hold."
Shares of other telecommunications and data services
companies were mixed, reflecting the volatile nature of the
sector that suffers from the weak economy, falling prices for
voice and data services, and difficulty securing funding,
analysts said. High speed Internet access company Rhythms
NetConnections Inc. filed for Chapter 11 bankruptcy
protection, marking the latest casualty in the
telecommunications slump.
On a positive note, RCN Corp. gained 7 percent
after posting strong second-quarter cash-flow due to tight
expense controls, analysts said.
GLOBAL CROSSING DOWNGRADED ON REVENUE CONCERNS
Global Crossing's stock fell $1.10, or 15.7 percent, to
$5.90 in morning trading on the New York Stock Exchange. The
stock has plunged 51 percent this year.
Hamilton, Bermuda-based Global Crossing on Wednesday
evening posted a wider second-quarter loss, slashed its
revenue-growth outlook for the year, and said it would cut
2,000 jobs, or about 15 percent of its work force, and close
some facilities in a move to save money.
It also said it may take a charge in the third quarter to
write down the value of certain strategic investments, such as
Exodus Communications Inc. . Exodus shares have fallen
about 95 percent over the past six months.
Credit Suisse First Boston analyst Dan Reingold cut Global
Crossing to "hold" from "buy," and said the company's future
revenue growth may come under pressure as bargaining power
shifts from carriers to customers.
"We believe this transition is occurring due to a
combination of slowing demand growth (due to the economy), lots
of new supply coming on stream, low marginal costs of new
longhaulcapacity and the abundance of competitors in the
longhaul market," Reingold said in a research report.
MCLEODUSA CUTS OUTLOOK, STOCK GETS CLOBBERED
Shares of McLeodUSA plunged 51 cents, or 18.09 percent, to
$2.31 after the telephone and data services firm cut its
revenue and cash-flow forecasts for 2001 and 2002. The company
did not spell out reasons for its reduced outlook, which
created uncertainty about the potential duration of problems,
analysts said.
USB Warburg downgraded the stock to "hold" from "strong
buy," saying it was difficult to project the company's growth
prospects in future years due to its current slow growth.
The firm also said it believes McLeodUSA, a so-called
competitive local exchange carrier (CLEC) that competes against
the dominant Baby Bells, needs more than $100 million in
additional funding despite a new equity investment of $100
million from Forstmann Little.
Analysts at Lehman Brothers and Morgan Stanley, however,
disagreed, saying the additional investment from Forstmann
Little, which will own 20 percent of McLeodUSA, gives the CLEC
enough financial security.
"McLeodUSA solidifies survivor position in our view. With
liquidity concerns virtually off the table and reasonable Q2
expectations, management can focus on execution," Lehman
Brothers said in a research report.
Cedar Rapids, Iowa-based McLeodUSA posted a second-quarter
net loss of $165.7 million, or 28 cents a share, compared with
$154.5 million, or 26 cents a share, a year ago. Revenues rose
by 43 percent to $473.6 million, which was below some analysts
expectations. McLeodUSA also named Chris Davis as its new chief
financial and operating officer.
RCN JUMPS ON STRONG Q2 CASH-FLOW, TIGHT EXPENSE CONTROLS
Shares of RCN, which provides voice and data services along
the East and West Coasts, jumped 7 percent after it posted
strong second-quarter cash flow amid tight expense controls,
analysts said. The stock added 30 cents to $4.53 on Nasdaq.
RCN's second-quarter cash-flow loss was $63.9 million,
which was $25.7 million smaller than the loss in the first
quarter and narrower than analysts' expectations.
Its second-quarter net loss widened due to the high cost of
building its high-speed communications network. Its net loss
available to shareholders totaled $676.9 million, or $7.38 a
share, compared with a loss of $208 million, or $2.45 a share,
a year ago.
Wall Street analysts expected RCN to post a loss in the
range of $3.02 a share to $3.36 a share, with a mean forecast
of a loss of $3.21 a share, according to research firm Thomson
Financial/First Call. Pro forma total revenues rose 37 percent
to $131.4 million.
REUTERS
Rtr 16:05 08-02-01 |
