(MONEY Magazine) – This year, AT&T holds two dubious distinctions: It is the worst-performing stock in the Dow Jones industrial average and the third-worst performer in Standard & Poor's 500-stock index. Merrill Lynch's Adam Quinton recently became the 12th analyst to deem Ma Bell's shares not worth owning. Ten more rate it a hold. The consensus: AT&T is a dinosaur, and its stock should be marked for extinction.

Of course, calling AT&T obsolete is nothing new. What's new is that Wall Street's extreme bearishness has made AT&T stock worth considering. While the company continues to lose residential customers to the regional Bells and wireless competitors, it is still a powerhouse in the more lucrative business of selling telecommunications services to corporations. Moreover, the company has a new chief executive who is cutting costs and debt. "It's a screaming buy," says Kaufman Bros.' Vik Grover, one of seven analysts who are bullish on AT&T's shares.

Both the bulls and the bears agree that AT&T is still very profitable. Analysts expect the company to earn $1.6 billion this year and $1.2 billion the next. The bears look at those numbers and say never mind the billions, the business is shrinking. And they foresee that shrinkage accelerating when WorldCom emerges from bankruptcy protection less debt-laden and with the ability to cut prices.

The bulls look at the company and see signs of life. Most of AT&T's contraction is coming from its residential division, where sales fell 18% in the first quarter of 2003 (AT&T's first as a stand-alone telephone company). But the corporate unit's sales slipped just 1.4%, and industry experts still see that business picking up steam in an economic recovery. As evidence, they point to the $1.7 billion in revenue AT&T garnered from new corporate clients during the first three months of this year, a trend many expect to continue. As for contending with a revived WorldCom, which will be renamed MCI, AT&T will be fiscally ready to fight for market share. It's rapidly paying down debt, which is estimated to fall to $10 billion by year's end, putting it in a better financial position than the revamped MCI.

Then there's David Dorman, 49, who became CEO in late 2002. Unlike his predecessor, C. Michael Armstrong, Dorman is an industry veteran. His initial plan for expanding AT&T's corporate unit includes reselling wireless and local phone service alongside long distance, Web hosting and network management, in hopes of enticing clients with a broad menu of plans and prices.

Indeed, when Kaufman's Grover calculates the stock's worth, he looks only at that division, which he predicts will generate $5.8 billion in earnings before interest, taxes and depreciation this year. Grover figures that cash flow should be worth five times EBITD (competitors trade for as much as eight times), or $29 billion. At a recent $19.97, AT&T's enterprise value (market cap plus debt) is $29.5 billion. That means daring investors are paying for AT&T's corporate business and getting its ailing residential unit--which is expected to spit out $3 billion in cash flow in 2003--essentially free. What's more, AT&T stock yields 3.8%. --STEPHEN GANDEL