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AT&T gets upgrade boost
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January 4, 1999: 3:29 p.m. ET
Merrill Lynch short- and long-term ratings upgrade lifts shares of telecom
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NEW YORK (CNNfn) - Shares of telecom giant AT&T Corp. hit a new high Monday, shooting up as much as 6 percent after a prominent Wall Street analyst upgraded the company's stock amid indications the long-distance telephone market may be primed for a growth explosion in the near future.
By mid-afternoon Monday, AT&T (T) stock had settled back slightly from its earlier high of 79, but was still up 2-11/16 at 78-7/16, or 3.55 percent, on heavy volume of 9.4 million shares on the New York Stock Exchange.
The immediate trigger behind the upswing was a ratings upgrade by Merrill Lynch analyst Dan Reingold, who revised his near-term rating on the stock to "accumulate" from "neutral," and his long-term rating to "buy" from "accumulate."
In a research report that commented on the upgrade, Reingold said the entire telecom market is growing faster than expected due in part to "positive surprises in Internet traffic." As a result, Reingold said he was sticking to a prior forecast for a 7 percent revenue growth rate in the long-distance market.
Reingold also set a price objective of $94 a share for AT&T stock over the next 12 to 18 months.
Earlier, Merrill Lynch had cut its long-distance growth outlook to 3 to 4 percent, citing price pressures induced by the expected entry of regional bell operating companies into the market.
Reingold said AT&T stock is due for a recovery "from a prolonged period of lackluster relative performance." In 1998, AT&T stock trailed the S&P 500 index, rising 24 percent as compared with 26 percent for the leading stock index. By contrast, the regional Bell companies, WorldCom, and Sprint rose a respective 48 percent, 137 percent and 58 percent, Merrill Lynch said.
In a related development, the research report noted that AT&T is expected to release on Jan. 6 the final details of its $48 billion acquisition of cable colossus Tele-Communications Inc.
The purchase, announced in late June, would provide AT&T with direct connections to 33 million U.S. homes through a network of TCI-owned and affiliated cable lines. As initially announced, the deal would fuse each company's Internet holdings, AT&T's long-distance businesses, and TCI's cable, telecommunications and Internet businesses into a new subsidiary, to be called AT&T Consumer Services.
That unit, as initially envisioned, would be one of three "tracking" stocks issued to follow the activities of three branches, the others being AT&T's business/wholesale operations and Liberty Media Group, TCI's cable programming arm.
Merrill said it expects AT&T will separate into two trading instruments, including a tracker or letter stock for its cable and wireless units, excluding consumer long-distance services. The remainder of AT&T, Merrill Lynch predicts, will include the long-distance units, AT&T Worldnet, Teleport and overseas activities, including a joint venture with British Telecom.
The cable and wireless tracker is expected to begin in late Spring, likely via an exchange offer, and could entail a public stock offering of around 10 percent of the company, Merrill Lynch said.
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