Local News

Embarq Stock Suffers in Launch as Separate Phone Company

Posted May 18, 2006

— Embarq

officially launched Thursday as the nation's fifth largest local phone company with more than 7 million access lines distributed across 18 states as its spin-off from Sprint-Nextel is completed.

Embarq shares now trade on the New York Stock Exchange under the symbol EQ. It also will be listed as a member of The Standard & Poor's 500 list.

It was not an impressive day for Embarq as shares dropped 3.6 percent in price, or $1.65, to close at $43.75.

More than 6 million shares traded hands.

Embarq shares debuted at $51 last week under "when issued" transactions.

Analysts at Citigroup have rated Embarq stock as a "buy" with a target price of $54. UBS has tagged the stock "neutral" with a target of $48.

Surterre Research launched coverage with a "buy" rating and a target stock price f $54, according to Reuters. Soleil also initiated coverage with a "buy" rating.

"Our goal is to offer practical, innovative solutions to help people communicate," said Daniel Hesse, the chief executive officer ofEmbarq, in a statement. "This is a new chapter in our 100-plus year history. We have the ability to improve and simplify communications services.

"Our goal is to make our services easier to use by integrating technologies in ways that enhance our customers' lives and businesses," he added.

The phone company has a major presence across the Carolinas. One of its largest concentrations for business is the Fayetteville, N.C. market. Its Carolinas headquarters is located just north of Wake Forest. Some 5,000 people work for Embarq in the Carolinas region, a quarter of the company's workforce.

Embarq has 1.5 million local access lines in service in 67 North Carolina counties.

Sprint employs some 800 people in the Triangle. Steve Parrott, Sprint's top executive for the Carolinas, is based in Wake Forest.

"North Carolina is No. 2 in terms of most customers, so it's of extreme importance," Chief Executive Officer Dan Hesse told WRAL Local Tech Wire shortly after taking the job. "Did you know that the second largest exchange we have is Fayetteville? It's second only to Las Vegas. That gives an indication on how important North Carolina is and why I will be visiting the state on a fairly regular basis."

In an interview with The Associated Press earlier this week, Hesse acknowledged the company faces challenges.

"We have our eyes open. It's not like we have a cakewalk out there, believe me," he said. "But I am really confident in our ability to succeed."

Heese will be in New York on May 22 to deliver a keynote address at the Lehman Brothers Worldwide Wireless and Wireline Conference.

Last week, Embarq offered its first official guidance as a company, predicting income could drop as much as $300 million in its first year of operations. The company cited increased competition.

"In light of these factors, Embarq expects net operating revenues to decline from $6.7 billion in 2005, as reported on a pro forma basis, to between $6.4 billion and $6.5 billion in 2006," Embarq said in a statement. "Operating income is expected to decline from the 2005 pro forma level of $1.76 billion to between $1.45 billion and $1.55 billion in 2006."

Analysts at Citigroup have rated Embarq stock as a "buy" with a target price of $54. UBS has tagged the stock "neutral" with a target of $48.


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