Ring up SBC

12/31/2004 12:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Roger Conrad is a leading authority on the utility sector, covering a wide variety of regulated and non-regulated sectors. Last year's pick, water utility Kelda, returned a solid 14%. This year, he turns to the telecom area to ring up his 2005 favorite.

"My top pick for 2005 is SBC Communications (SBC NYSE). The company raised its quarterly dividend by another 3.2% in early 2005. That continues management’s strategy of dishing out generous cash flow to shareholders even as it aggressively expands dominant national franchises in wireless and wireline communications. The company's  60%-owned Cingular Wireless unit is reporting better-than-expected progress integrating its acquisition of AT&T Wireless, with customer turnover or 'churn' falling and cost savings on track.

"As a result, SBC Communications has cut its anticipated 2005 dilution from the deal virtually in half from its original estimates. Meanwhile, the Federal Communications Commission’s phase out of subsidized rental rates should slow local phone line losses, as the company continues to grow its high-speed Internet business. That adds up to a likely upside surprise in revenue growth for 2005 that should power the stock into the 30s. SBC rates a buy up to 28."

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