Strong ratings shelter SBC

SBC Communications fell 5 percent on news that its first-quarter earnings would miss expectations. The stock's slump was relatively shallow as analysts maintained their ratings and said SBC continues to be their top pick in the telecom sector.

Shares in the vendor of telecommunications services and products were off $2.35 to $43.15 Friday. Thursday night, the company warned that it sees first-quarter net income of 50 cents to 53 cents per share. First Call's consensus had been predicting a profit of 59 cents per share for SBC's quarter ending in March.

Despite lowering first-quarter projections guidance, the company reiterated its full-year earnings growth expectation of 11 percent to 14 percent, and revenue growth of 8 percent to 9 percent. This--along with the company's position relative to its peers and the recession-hardy nature of RBOCs (regional bell operating companies)--kept analysts upbeat on the stock.

Morgan Stanley analyst Simon Flannery also reiterated his "strong buy" rating and said the company continues to be a top pick.

"We continue to like SBC and believe it is one of the best-positioned telecom companies," Flannery said. While he lowered estimates for 2001, he said that the year-over-year growth rate is not too demanding, and visibility should improve going into the second quarter.

ABN AMRO analyst Kevin Roe maintained a "buy" rating and a $70 price target on news that the company's full-year outlook was unchanged.

"We estimate that SBC will (benefit) from previous acquisitions and DSL (digital subscriber line) provisioning improvements as the year progresses," Roe said. He added that "near-term weakness in the stock... (is) an enhanced buying opportunity."

Goldman Sachs analyst Frank Governali didn't change his estimates, but merely shifted the expectation for growth into the second half.

The company blamed the shift on an expectation of higher expenses, and said there were two main reasons for this: costs related to the Sterling Commerce acquisition and service upgrades in its Ameritech region.

Other than these two factors, any problem that SBC faces will be faced by every other company in the telecommunications arena, Governali said.

SBC's difficulties will also affect "virtually all sectors of telecommunications" including local and long distance, voice and data, incumbent and competitive, and wireline and wireless divisions, said Deutsche Banc Alex Brown analyst Gary Jacobi, who reiterated a "strong buy" rating.

When SBC is compared to peers, it comes out on top. It belongs to a select category of telecommunications companies, the RBOCs, that includes BellSouth (NYSE: BLS), Qwest (NYSE: Q) and Verizon (NYSE: VZ).

"Unlike many sectors in telecom, which are having a difficult time growing top-line revenue, the RBOCs, and in particular SBC, are aggressively and successfully growing wireless, data and long-distance markets," Jacobi wrote.

Several other analysts have suggested that RBOCs may not only fare better than most other companies during an economic downturn, they may even see their stocks go up.

"In our opinion, there is no better place to be in telecom than with the RBOCs," Jacobi said.