| BellSouth (BLS) 22.73 -4.88: BellSouth is getting hit hard today as it missed estimates and guided lower. Q2 EPS came in at $0.53, $0.04 below the Multex consensus. For 2002, BLS sees normalized EPS of $2.13-$2.20 (consensus $2.34). First, the good news. BellSouth said its Cingular Wireless joint venture added more new subscribers than expected in Q2, helped by lower customer turnover and the introduction of new price plans earlier in the year. The No. 2 wireless carrier behind Verizon Wireless said it added 353,000 net new customers, compared with analysts' expectations of about 300,000. While it was a sizable increase from the 234,000 subscribers it added in Q1, it was well below last year's 701,000. But that's not why investors are sending the stock to its lowest level since September 1997. Investors are focusing on the bad results from its wireline and Latin America businesses. Also having a big effect is Merrill Lynch downgrading the stock to long-term Neutral from Buy on the view that company's quarterly results point to a weaker outlook into the longer term. Since the firm believes the slowdown at BLS has implications for other RBOCs longer term, Merrill also downgrades Verizon (VZ 28.63 -3.87) and SBC Comms (SBC 23.41 -3.27)... The group has been trending lower over the last few months, on poor results and the messes created by Qwest and WorldCom. Is it time to bottom fish? That's debatable, but WCOME has been one of the most dominant competitors for the Baby Bells. They stand to benefit from WCOME's woes as consumers seek the security of a Baby Bell as their service provider rather than the bankrupt Worldcom. There are some positive attributes for these beaten up names. They continue to throw off strong cash flow, are profitable and are trading at low p/e multiples. BLS trades at a p/e of 10.5x, while VZ and SBC trade at 9.2x and 10.0x, respectively. Also, the price declines have boosted the dividend yields: 5.3% for VZ, 4.6% for SBC, and 3.5% for BLS. These are quite attractive compared to Treasury 10-year yields of just 4.5%. These dividends should remain intact given the substantial and stable cash flows generated by the local phone business. But there are no guarantees. Bottom line, there is likely more downside in the near term, but if the group continues to fall, they are worth keeping an eye on. -- Robert J. Reid, Briefing.com |
