Bear Stearns Keeps Neutral Rating on Qwest

Analyst Robert Fagin expects that the company will not generate material long distance revenue in 2002

Bear Stearns maintains its neutral rating on shares of Qwest (Q ) following the company's filing of its Form 10-K with the Securities and Exchange Commission.

Analyst Robert Fagin says that while many of the 10-K disclosures are psychological negatives (such as SEC inquiries and EPS adjustments), they will have a minimal financial impact. However, two important disclosures emerged: the company is taking a $20-$30 billion second quarter goodwill writedown, and announced a delay in its long distance market re-entry to fall/winter. Fagin notes that the writedown will increase Qwest's debt-to-capital ratio to between 60%-79% from 40%, while EPS would be impacted by $12-$18 per share. As a result of its delay into long distance, the analyst expects that the company will not generate material long distance revenue in 2002, as was already reflected in his model; further delays could put 2003 revenue at risk, according to Fagin.

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