JACKSON - Half empty or half full?
Analysts examining WorldCom's financial glass have differing opinions on the company's prospects, as evidenced late last week when one investment firm downgraded the telecom giant's shares and another upgraded them.
The new ratings - an upgrade by JP Morgan and a downgrade by Credit Lyonnais - came after WorldCom reported fourth-quarter and full-year earnings for 2001 on Thursday.
"It seems to be a case of some people seeing the glass half full and some seeing it half empty," said David Burks, an analyst with J.J.B. Hilliard, W.L. Lyons in Louisville, Ky.
"My guess is that those who have downgraded are doing so based on a difficult fundamental outlook going forward," said Burks. "We've had a 'long-term buy' rating on WorldCom and are keeping it. We still think their prospects are reasonably good."
The Clinton-based company - the only Fortune 500 firm based in Mississippi - said earnings were down 34 percent for the final three months of last year in its data and Internet business group.
As expected, WorldCom also significantly reduced its 2002 revenue-growth and profit expectations.
But company executives, who have seen the stock price plummet in recent weeks, said there was an upside.
WorldCom reported it was paying off its massive debt and bringing in cash. Executives said they also were not using "off balance-sheet accounting," a practice that led to the collapse of Enron Corp.
Chief executive Bernie Ebbers, in a conference call with analysts and investors after Thursday's earnings release, said questioning WorldCom's viability "is utter nonsense."
It didn't take long for some analysts and investment rating agencies to react.
Moody's Investors Service said Thursday afternoon that they were placing WorldCom's long-term securities rating on review for possible downgrade.
JP Morgan and Credit Lyonnais announced their changes Friday morning.
In his WorldCom note, JP Morgan analyst Marc Crossman wrote: "We are raising our rating because we … actually believe the following two points: 1) The company has set expectations low enough for the next couple of quarters to meet expectations - despite the weak economic environment. 2) The valuation of the stock would suggest that there is more potential upside than downside."
Crossman upped WorldCom shares from long-term buy to buy.
Rick Grubbs of Credit Lyonnais, who had WorldCom rated "buy," knocked his outlook down a notch.
Several factors have contributed to WorldCom's spiraling stock price, which has fallen some 50 percent since Jan. 1. Among the concerns have been the company's debt burden, fallout from the Enron scandal and Ebbers' ability to repay $340 million the company has loaned him to buy WorldCom shares.
Ebbers said Thursday he has more than enough assets to repay those obligations.
Copyright 2002, Associated Press. This material may not be published, broadcast, rewritten, or redistributed.
