Qwest speculation: Turnaround or takeover

Investors have been focusing on Qwest's shortcomings, but at least one Wall Streeter is looking hungry like the bull at the stock.

Turnaround specialist George Putnam says the company is looking good because of its large base of landline - yes, landline - customers. Each landline customer is an opportunity to sell new or expanded services, including data, video and wireless. While Qwest continues to build out its broadband network, it has partnered with Verizon Wireless to sell cell phone service and DIRECTV for video.

Meanwhile, Qwest has been expanding its business services unit revenues, and Putnam expects revenues to uptick on the consumer side as it continues to add more products.

Cash flow remains "very strong" and, after cutting its debt by nearly a third since 2001, Qwest is now providing dividends and buying back shares. Expenses have been cut by $2.5 billion over the past five years, and the company is trimming another 1,200 jobs this year.

Putnam says that Qwest looks especially tasty for an acquisition by either AT&T or Verizon, or even a foreign telecom firm looking for an American beachhead [Hmm, there's a lot of Persian Gulf money sloshing around these days].  At about six times 2008's expected earnings and four times cash flow, the company looks "very cheap."

Regardless, he expected to see earnings and cash flow to increase and multiples to rebound, translating into a "significantly higher" stock price.

For more:
- Speculation on Qwest's fate is blogged.

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