AT&T shares up 19% on CEO switch Investors anticipate much-needed changes

December 27, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- AT&T Corp. stock has climbed 19 percent in the two months since former publishing executive John Walter was named president and successor to Chairman Robert Allen.

AT&T shares rose $1.675 to $43 yesterday on the New York Stock Exchange. That's up from $36.25 on Oct. 24, the day after Walter's appointment. The stock started the year at $49 and fell as low as $33.25 on gloomy earnings and rivals' inroads into the long-distance business.

Walter is expected to make much-needed changes to promote cooperation among AT&T units as the company gears up to offer all of its telecommunications services -- from long distance to Internet access -- on one bill. AT&T has lagged behind competitors in such packages, which analysts say will help keep customers on board.

"AT&T finally has a real take-charge CEO who is shaking things up and getting things moving," said Barry Sine, an analyst at SBC Warburg Inc.

Walter joined AT&T from R. R. Donnelley & Sons Co., capping a long-awaited move to name Allen's successor. He's already begun to put his stamp on the company -- this week replacing Joseph Nacchio with Gail McGovern as head of the consumer division, which generates $26 billion in annual sales.

Walter sees McGovern as a team builder who will help stem customer defections and a slide in earnings by getting all of AT&T businesses to work together. Sixty-eight percent of U.S. ,, households had AT&T phone service in September, down from 75 percent a year ago -- the biggest one-year loss ever, the Yankee Group said.

AT&T has warned investors that earnings in the second half of 1996 will be below estimates as it struggles to boost revenue, which increased 2.4 percent in the third quarter.

In the company's favor, AT&T could benefit as the Federal Communications Commission studies ways to cut the $30 billion-a-year that long-distance providers pay the local phone companies to complete calls. The change could save AT&T hundreds of millions of dollars a year, analysts said.

"AT&T has more traffic than anybody," said Robert Wilkes, an analyst at Brown Brothers Harriman. "That could enable it to get a competitive advantage."

The stock is trading at 11 times its 1997 earnings-per-share estimate. That's below the 14 times price-to-earnings multiple that's the average for the industry -- the regional phone companies, MCI Communications Corp. and Sprint Corp. -- said Richard Klugman, an analyst at PaineWebber.

Pub Date: 12/27/96

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