What to do after the debacle at No. 2 WorldCom? Buy stock in global No. 1 AT&T (T ). Some value players are now loading up on the phone company, which has been on the ropes for a year. Shares are at 9.62, down from nearly 20 in December. What's the lure?
These pros aren't after AT&T's phone business. They expect extra value in the struggling giant because of Comcast. In December, AT&T agreed to sell its cable-TV business to Comcast in a $72 billion deal closing at yearend, 2002. Combining AT&T's 13.4 million broadband subscribers with Comcast's 8.5 million makes Comcast No. 1, with a total of 22 million.
AT&T shareholders will get a third of Comcast stock, which would add $7.50 to the worth of each AT&T share, based on Comcast's price of 23, figures John Maloney, president of M&R Capital, which has been buying into AT&T. Comcast has fallen 35% this year, so it's depressed relative to assets, he says.
Maloney figures Comcast's true worth is 35, which would boost its contribution to each share of AT&T to 11.40. He estimates the value of the AT&T "stub" (the remaining value of AT&T'S phone business after the cable sale) at 4 a share: Adding the two brings AT&T's value up to 15.40.
Phone stocks are down because of general turmoil in the industry. But in the wake of the WorldCom disaster, says Maloney, its business clients will flock to AT&T, whose capital structure is sound. AT&T, which posted revenues of $53 billion last year and earned 23 cents a share from operations, is expected to do a 1-for-5 reverse stock split after the Comcast deal. Comcast posted revenues of $9.6 billion last year and net income of $608.6 million, or 63 cents a share. Maloney thinks Comcast's financials are sound: It has a stable cash flow and--despite the cable deal--its debt burden "isn't troubling to us," he adds.
By Gene G. Marcial