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AT&T shares trade near 1991 levels

Ma Bell flirts with $20 per share as investors question the company's short-term prospects and punish the telecom sector as a whole.

    Ma Bell shares flirted with their lowest levels since 1991 Friday as investors questioned the company's short-term prospects and punished the telecom sector as a whole.

    Shares closed at $20.13. Earlier in the day, shares hit a low of $20.

    "AT&T is being punished because this is a very short-term-oriented market," said Drake Johnstone, first vice president of investment firm Davenport & Co.

    After AT&T chief executive C. Michael Armstrong announced more than two weeks ago that the company would be split into three corporations with four separate stocks, shares rallied to nearly $30 but have since continued the decline that began this summer.

    Armstrong has insisted that the breakup plan will provide a long-term benefit to all of the resulting companies by resulting in leaner, more profitable operations, while insulating Ma Bell from the double-digit revenue declines found in its consumer long-distance unit. But such talk isn't encouraging shareholders to go out and invest now.

    Johnstone said the two most attractive assets in the AT&T breakup--AT&T Wireless and AT&T Broadband--may not be distributed to shareholders as distinct stocks until well into 2002. "Current shareholders aren't going to see an immediate payoff" from the breakup, he said.

    In the meantime, Johnstone predicted AT&T would see continued declines in its residential long-distance service and possibly some losses in its business unit, "which could make it hard for the stock to recover."

    AT&T joined many other telecommunications stocks in taking a dip Friday, following the announcement by BellSouth on Thursday after the market close that its 2001 earnings growth would be less than expected.

    "I think the market reaction to BellSouth is a bit of an overreaction," Johnstone said, noting that part of the reason for the Baby Bell's expected decline in earnings growth will be a much-needed expansion of residential DSL service. The telecom stock decline Friday "is indicative of the short-term view investors have," he said.

    Earlier this week Salomon Smith Barney cut AT&T's estimated earnings per share for 2001 to 80 cents from $1.45, while keeping the rating at neutral. Merrill Lynch followed suit, cutting earnings estimates for 2001 to 83 cents from $1.50 and maintaining a rating of near- and long-term accumulate.