From Street.com A tip from Santa written by Jim Seymour
Seems to me you have to make seven assumptions to buy
into my argument that Qwest is potentially The Next Big
One (think Microsoft, Cisco (CSCO:Nasdaq), with a
potentially explosive future and little downside exposure at
the $40 level:
Bandwidth demand explodes. Duh.
An inventory of fiber in place, "dark" but ready to turn
on, will be an immensely valuable asset for years to
come. Ditto. How else can we meet that demand for
bandwidth?
Qwest management understands how to grow a
company, and Joe Nacchio is a superb "stock
manager," a la Jeff Bezos at Amazon
(AMZN:Nasdaq). In the Internet era, a mere
four-times gain over 18 months may not dazzle -- oh,
but we are jaded! -- but it's solid growth, and has laid
the basis for Qwest's future. Qwest's management
team is deep and experienced.
Qwest's competition won't be able to catch up.
Qwest isn't going to dominate this market
completely: The market's too big, and the
competitors are strong. IXC Communications
(IIXC:Nasdaq), for example, is a well-run,
well-financed company, arguably the equal of Qwest.
But for the investor, Nacchio's halo on Wall Street is
a huge asset: Qwest keeps outperforming IIXC in the
market and is likely to continue to do so. Other
powerful competitors have emerged: Level 3
Communications (LVLT:Nasdaq), spun off from
Peter Kiewit Sons', the Omaha, Neb., construction
giant and now run by former Qwest board member
James Crowe, and Williams Communications, part
of Tulsa oil giant Williams (WMB:NYSE). And of
course, MCI WorldCom. But Qwest is likely to stay
ahead. (You could do a lot worse than build your own
"bandwidth portfolio," with all five.)
Regulation won't ruin the business. Always a risk.
Qwest has already had one setback from the FCC,
which in September knocked down a deal it had
struck with Ameritech (AIT:NYSE) and US West
(USW:NYSE) to resell at retail cheap long-distance
service over the Qwest network. Qwest may continue
to find obstacles [read: land mines planted by
lawyers from traditional long-distance carriers, such
as AT&T and MCI WorldCom] in its path in the retail
business, but its future is in selling bandwidth
wholesale, not in peddling long-distance service to
consumers.
Advances in technology and overbuilding by
competitors won't ruin the business. Technology
marches ahead in fiber transmission: We're able to
stuff more and more data into a given strand of glass
with new flavors of multiplexing. And in so lucrative a
market, others will build like crazy. (LVLT is already
laying three conduits across America.) But the nearly
insatiable demand for bandwidth is likely to absorb all
the capacity now under construction and planned
almost as soon as it's available, even with
sophisticated multiplexing tricks. And Qwest will
almost certainly remain the lowest-cost bandwidth
reseller, so it should be able to defend itself, even in
an overbuilt market. Again, you've gotta believe in this
explosion of demand for bandwidth, or you ought to
stay away from all these companies.
Qwest will find the right partners and cut smart deals.
If you're a reseller, you've gotta ... well, resell. So
building long-term business partnerships is a key for
Qwest. So far it's done well, partnering with GTE,
MCI WorldCom and others, including Microsoft, from
which it received a $200 million investment and the
right to use NT networkwide in a deal announced last
week. The reasons given for the Microsoft investment
make no sense whatsoever. But think of Microsoft's
investment in companies it wants to sell set-top
boxes to, and you get the idea: MSFT wants to make
sure it's a player in the large-scale network services
business. And $200 million bought a cheap seat at
the table.)
I'm not the first to note that Denver is the wrong home for
Qwest in many ways. This is in every sense a Silicon Valley
high-tech company, not an old-tech phone company. (Don't
tell Jim Cramer that; he thinks Qwest is just another boring
phone company. Little does he know...) Qwest should, and
soon enough will, be seen -- and valued -- like the high-tech
star it is. It is, in fact, arguably an Internet company.
(Fasten your seat belts.)
My price target for Qwest? I don't have one. If I put up a
number like $400, you'd think I was playing Internet-stock
analyst. Let's just say I think that out about five Christmases
from now, you'll be ho-ho-ho'ing from the rooftops.
So ... that's my Christmas gift to you this year: a stock you
can actually invest in, not just trade in and out of. Reminds
you of Christmases past, doesn't it, Ebenezer?
May it make you wealthy, if not necessarily healthy or wise.
And if it doesn't, blame the fat guy in red with those
funny-looking deer, not me.
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