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AT&T falls on warning, analyst talk

    AT&T (NYSE: T) fell 11 percent Thursday following its fourth downward revision to first quarter estimates. Analysts maintained their ratings, but said the company had better act fast to offset the death of its long-distance business.

    Shares were down 2 to 16.938

    The company lowered estimates again Wednesday night. In October, it decreased the forecast from the one provided in May, which was a downward revision from last December's projections.

    The company blamed lower earnings expectations on a reduction to growth estimates in its business and consumer communications services. It also said the quarter's poor performance would impact prospects for 2001 compared with previous guidance.

    Analysts were surprised by yet another warning, but said the dividend cut, which will save AT&T $2.74 billion per year, was "no news."

    Bear Stearns analyst William N. Deatherage reiterated a "neutral," and called the situation "d?j? vu all over again."

    He said the pre-announcement was a surprise because AT&T's prior guidance was less than two months old.

    "Clearly, the communications services business is in a freefall and the positive operating leverage that served AT&T well in the past is now very negative," Deatherage said in a research note. He added that although the recapitalization and restructuring plan will set the stage for price appreciation, the trigger is better operating results.

    "Our fear of further disappointments is greater than our keenness to participate in the potential upside," the analyst added.

    CIBC Oppenheimer analyst Tim Horan maintained a "buy" but lowered revenue and earnings guidance for the fourth quarter.

    He predicted that long-distance will disappear as an industry in the next 18 months, and that disruptive tecnologies will reshape the sector in 2001. For this reason, Horan said he is "extremely cautious on most of the long-distance stocks" and advised AT&T to break its business up along customer lines not functional lines.

    The company "has valuable customers, but needs to figure out how to sell them a higher quality lower cost bundle of services. It will never do this as a vertically integrated company," Horan said.

    On a positive note, he added that the company's wireless and consumer broadband businesses remain on track.

    Horan said his buy rating was based on a belief that cable assets and wireless assets are worth $20 per share, but added that investors will have to wait for the completion of the cable and wireless spin-outs to recognize this value.

    Goldman Sachs analyst Frank J. Governali also lowered guidance and that AT&T's wireless operations continue to chug along.

    "We still don't expect (long distance) stocks to perform until there is some sign of fundamental progress, and this is not likely until the spring. Thus, there is no reason to be buying these stocks now," Governali said.

    The analyst added that the incremental consumer problems will impact both Worldcom (Nasdaq: WCOM) and Sprint (NYSE: FON), "with perhaps a similar severity."