RESEARCH ALERT - Details on AT&T upgrade
NEW YORK, Nov 9 (Reuters) - Lehman Brothers on Monday confirmed it upgraded AT&T to buy from outperform.
-- said raised its 1999 earnings estimate to $3.45 a share from $3.20 a share.
-- said expects AT&T to deliver accelerating revenue growth, perhaps reaching a rate of 8 percent to 9 percent, about double current levels, by the fourth quarter of 1999.
-- said that revenue growth is possible ''even if one takes a fairly pessimistic view of the traditional long distance market.''
-- said growth is expected to come from increased penetration of low-share markets, such as consumer transaction services, local telephone service, business wholesale and network integration, and continued growth in data and wireless.
-- said AT&T's new Chairman C. Michael Armstrong is attacking these potential growth markets and has installed aggressive new management in these areas.
-- said the consumer transactional service markets, which includes dial-around service, pre-paid cards and 800 collect calling, account for about $5 billion in annual revenues or about 17 percent of the total consumer long distance market. Said AT&T has made several initiatives in these markets, such as launching its Lucky Dog dial-around service. Said AT&T has less than a 10 percent share in the
transactional services market but these areas will drive 8 percent to 10 percent of AT&T's revenue growth in the next two years.
-- said believes AT&T has less than a quarter of the $8 billion to $10 billion market for wholesale long distance services. Said AT&T expects to aggressively grow this sector's revenue stream over the next year.
-- said growth in the AT&T Solutions business has been exploding in recent years. It has a backlog of more than $4 billion in contracts and should be able to post accelerating revenue growth over the next two years. The solutions business should provide about 8 percent to 10 percent of AT&T's overall growth over the next two years.
-- said the local telephone business has the greatest potential for growth. AT&T currently has less than two percent of the market, but acquired Teleport, one of the leading industry assets.
-- said AT&T appears strongly committed to completing its acquisiton of Tele-Communications Inc. (Nasdaq:TCOMA - news) and striking partnerships with other cable companies.
-- said believes AT&T is fundamentally being transformed from a company worried about defending voice long distance market share to a company growing into new, exploding markets.
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