COMMENTARY -- SBC Communications (NYSE: SBC) is worth more than any other big-time communications provider in the United States.
Ok, that's not quite true -- Qwest Communications (NYSE: Q) carries a far higher multiple to 2001 estimates. But other than Qwest, SBC rules the roost with a valuation of nearly 20 times next year's earnings forecast, based on First Call consensus and stock prices this morning.
A multiple of 20 might not sound like much, but it's better than AT&T (NYSE: T) or Verizon Communications (NYSE: VZ), each at roughly 16 times forward earnings; better than BellSouth (NYSE: BLS) at 17; far better than Worldcom (Nasdaq: WCOM) and Sprint (NYSE: FON), both treading at 12.
Think of it as the benefits of a receding background. As major long-distance vendors faded over the last few months, SBC not only held its ground, but climbed steadily:
Today's third quarter report illustrates any number of reasons for SBC's relative strength. Its data business continues to power ahead with 46 percent growth in the third quarter. The much ballyhooed DSL business hit a growth bump during the summer, but it seems to be back on track; by the first quarter of next year, the company expects to have 1 million DSL lines installed, which would translate into 94 percent gain in less than six months.
Wireless remains a solid unit for SBC, which is more than the wireless-challenged Worldcom can say. Long distance -- the segment dragging down Sprint, AT&T and Worldcom in the eyes of investors -- appears to be a strong growth segment for the Baby Bells. SBC's Southwestern Bell unit claims a market share of more than 10 percent in Texas just three months after starting. The company looks to sell long-distance to the rest of the old Southwestern Bell territory by the first quarter of next year; the biggest prize, California, is expected to be open sometime in the first half of 2001.
Wall Street seems content with that these days -- shares of SBC gained nearly 3 points by early afternoon, making it the Dow Jones Industrial Average's second-best gainer of the day, behind Honeywell (NYSE: HON), which rose on its acquisition by General Electric (NYSE: GE).
Not even the prospects of slightly lower-than-expected earnings for the fourth quarter could keep SBC down. We're only talking about a penny difference, so it's not a major revision.
Most large communications service providers face one or more questions. When will AT&T start delivering on its all-in-one cable promises? Can Qwest do anything with U.S. West? Will Worldcom ever get a wireless component? Can Verizon realize the full value of its wireless unit? Are Sprint and BellSouth doomed to irrelevance following continued failures to land merger partners?
By contrast, SBC's major uncertainties are behind it. Local service? Check. Long distance? On it. Business data transport? Roaring ahead. Broadband Internet access? Moving as well or better than anyone else.
With the addition of Sterling Commerce earlier this year, SBC seems to have all the pieces it needs to carry out its plan. Now it's just a matter of doing it.
Judging by the company's results so far this year, SBC is doing it well. 22GO
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