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To: Fred Levine who wrote (5805)	1/31/2000 12:13:00 PM
From: Fred Levine	Respond to of 11568

Stock of the Day Jan 31, 2000 MCI Worlcom: On Injured Reserve - MCI Worldcom, Inc. (Nasdaq:WCOM - news) operates in 65 countries as a leader in business telecommunications. It offers everything to the telecom user (mostly companies): facilities-based and fully integrated local, long-distance, international voice, data, and Internet services. It's not only the most competitively positioned company in its industry but also the fastest growing of any of the large cap telcos. It has already developed the most complete portfolio of assets and resources for a global communications giant. Both Salomon Smith Barney and Goldman Sachs endorse the stock without reservation, calling it their favorite large cap growth telco. So why is the stock hitting new lows all the time? Here are the most commonly mentioned reasons: 1.Increased competition for telephone services. MCI gets about 60% of its revenues from domestic voice services. That arena is getting more crowded with a lot of talk about free talk coming in the not too distant future. MCI is shifting its focus to more lucrative areas such as data, international and Internet business. The company has announced its goal of reducing the domestic voice service to 54% by the end of the year. Also, because the company is focused on the business, not consumer, sector of telephones, it doesn't feel quite the same intensity of competition that the consumer-only company does. 2.On January 6, Salomon Smith Barney, long a booster of the stock, cut their earnings estimates for the year 2000 and 2001. While seemingly small (down 3 cents for 2000 and 7 cents for 2001), it's the direction that worried investors. This is a growth company, and the earnings and revenues are supposed to be increasing if it follows the classic growth pattern. Salomon Smith Barney still has a buy rating on the stock. The day before CS First Boston had upped the rating on the stock to a Strong Buy. 3.MCI has contracts with AOL for Internet access. In fact, AOL is MCI's largest single customer. When the Time Warner deal was announced, investors worried that those contracts would go away, and Time Warner would get all the AOL business. Don't believe it. Time Warner doesn't have enough distribution capability to deliver everywhere that MCI does. Furthermore, to put those AOL revenues in perspective, an analyst from Jefferies & Co. calculated that even if the AOL revenues went away, they represent less than 1% of the worldwide revenues for MCI. That's not a cause for panic, he stated. 4.MCI is looking to buy Sprint. This acquisition was to be the largest in history until the AOL/Time Warner deal hit the news. Many investors wonder if MCI is overpaying for the company. Others are wondering if the regulators will allow it to happen. Until the two companies are merged, this adds an uncertainty that investors don't like. The chairman of MCI remains very positive. Bernie Ebbers believes the AOL/Time Warner deal will create more demand for its services as AOL tries to get the TW content to even more homes. He's also forecasting growth of 13.5% to 15.5% in revenues for next year. Some investors only focused on the first number and thought he was lowering growth rates. He wasn't: only putting a range on them. And there are more companies in Ebbers sights. As far as he's concerned, the Sprint deal is just one for this year. There are many more opportunities internationally that he's considering. Look for new additions to the MCI portfolio. One of the strengths the company has its flexibility. During the last several years, MCI has evolved from being a reseller of long distance telco services to a facilities-based long-distance carrier to a dominant Internet company, and most recently to a competitive local exchange carrier and international player. In other words, the company runs to daylight. Furthermore, the Sprint addition will add a wireless component the company needs. One of the strongest drivers going forward for MCI is its Internet delivery capability. As the price for Internet access drops, MCI can offer the service to a wider audience globally. The cost of sending traffic over networks will decline along with the prices for the service. As the bundling of services gets closer to reality, the cost of acquiring and retaining new customers should parallel the reduction of revenues. In summary, the more local markets open up to competition, the more MCI has to gain. While MCI is currently out of favor, its prospects seem bright. There's enough uncertainty surrounding the stock to scare away more conservative investors. But considering the growth in revenues over the last five years (64% annually, on average...on an absolute basis the revenues went from $4.5 billion in '96 to a projected $36 billion for '99), there's no question the company will continue expanding. It's the profitability that has been elusive: in '96, the company lost $3.61, then in '97 made $0.15, while in '98 it lost $1.52 only to earn $0.92 for the first three quarters of '99. If the bottom line can continue to grow along with the revenues, this stock will be back in the game better than ever. - Ted Allrich The Online Investor Archives: [ Thu Dec 30 \| Wed Dec 29 \| Tue Dec 28 \| Mon Dec 27 \| Thu Dec 23 \| more ] Enter one or more ticker symbols, or you may look up the symbol by company name. fred