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Shell-shocked. That's how telecom investors must feel as they reel from the group's decline--exacerbated by Nortel Networks' (NT
) record second-quarter $19.2 billion loss. Is there reason to be optimistic? David Roberts, who co-manages Northern Trust's Large-Cap Value Fund, thinks so. "Despite the somber outlook, we're convinced the end of declining stock prices is close at hand," he argues. The market now "offers outstanding values--telecoms included."
Telecoms aren't usually Roberts' bag, but he sees ALLTEL (AT
)--which provides cellular and regular phone services, plus Net access--as a value play. Its markets are in smaller cities that the big telecoms ignore. But that's where cellular demand has picked up, says Roberts. ALLTEL has 6 million cell subscribers.
Skeptics think telecoms still face big risks. Roberts concedes that in the near term subscriber growth may slow, but he thinks that will be temporary. Roberts says ALLTEL, down from 69 a year ago to 57 now, will emerge a winner. ALLTEL is "appealing to value players like us," he says, because of its "strong balance sheet, excellent debt rating, and strong cash flow." Trading at 20 times last year's earnings, the stock is at the low end of ALLTEL's five-year price-earnings average of 19 to 29. Roberts thinks that in 12 to 18 months, the stock could hit 75--or 21 times estimated 2002 earnings of $3.43 a share. In 2001, he expects profits of $2.89. Some 50% of ALLTEL's revenues comes from its wireless unit and about a third from regular phones, the big cash generator. In beating first-quarter estimates and sticking to its earnings guidance for all of 2001, ALLTEL shows it can and will maintain its market share, says Roberts. By Gene G. Marcial