WCOM ( $3.90)n in slide after warning
Broker downgrades add up Monday morning
By Emily Church, CBS.MarketWatch.com
Last Update: 7:06 AM ET April 22, 2002
LONDON (CBS.MW) - WorldCom shares were sharply lower in pre-open trading on Monday after the carrier warned sales and profits would miss its targets late Friday and a number of brokers moved overnight to downgrade the stock.
At least four brokers cut their ratings on the stock. Credit Suisse First Boston, which dropped to a 'sell' from a 'hold' recommendation told clients it has a $2 price target on the stock.
WorldCom (WCOM: news, chart, profile) were holding to late Friday lows at $4.80 in London - representing a 20 percent slid from the close. The U.S. carrier cut financial projections for 2002, citing the weak economy and lower corporate spending on data and phone service late Friday. See full story.
WorldCom cut its outlook for revenue by about $1 billion, or 5 percent, and cut its target for earnings before interest and tax by 15 percent. It also said it would cut capital expenditures to an estimated $4.5 billion from its previous range of $5 billion to $5.5 billion.
JP Morgan and Goldman Sachs downgraded WorldCom overnight to a middling 'market perform' from a 'buy'; Merrill Lynch, like CSFB, dropped the stock to a 'reduce/sell.' AG Edwards on Friday cut the stock to a 'sell' as well.
"We believe investors will be increasingly concerned about financing availability and cost as debt comes due, at best further diluting earnings per share," CS First Boston said. WorldCom "could be forced to repay $2 billion A/R financing if S&P & Moody's lower by 2 notches."
The sector was further roiled Monday after infrastructure and mobile phone maker Ericsson (ERICY: news, chart, profile) warned it expected a loss this year, and planned to sell more shares to raise funds. Ericsson shares plunged over 22 percent in Sweden. See full story.
WorldCom was the third major phone company to reduce its forecast last week. BellSouth (BLS: news, chart, profile) and Qwest Communications (Q: news, chart, profile) also cut estimates.
"Already a long-standing casualty, (WorldCom) appears to be seeking a move into intensive care," Merrill told clients. The broker said the WorldCom warning "makes it all the more likely that Verizon Communications (VZ: news, chart, profile) will be the next company to adjust downward its full year estimates."
Verizon is slated to report on Tuesday; AT&T Corp. (T: news, chart, profile) on Wednesday.
Shares of AT&T were also under pressure in the pre-open, trading down 30 cents in London at $14.20, dealers at Madoff Securities in London said. However, some brokers said it appeared WorldCom may be losing some share to AT&T.
"We had believed, and continue to believe that business conditions in long distance have bottomed. The problem is that for WorldCom, the bottom on the profit side is deeper than we feared," Goldman Sachs told clients.
"This appears to be driven by a particular weakness in Data/IP services, traditionally the primary driver of growth and profits for WorldCom," Goldman said. It cut the stock to 'market perform.'
Emily Church is London bureau chief of CBS.MarketWatch.com |
