Shares of Qwest Communications International Inc. got a boost Tuesday after the phone company was upgraded by UBS analyst John C. Hodulik, who cited the stock's attractive value and expectations for improving revenue.
Qwest, based in Denver, is the primary local phone service provider in 14 mostly western states. Hodulik upgraded the company's shares to "Buy" from "Neutral" and raised his target price to $5.50 from $3.80.
He called Qwest a "strong contender for 2010" and said it could be a takeover target as the rural land line market consolidates.
Qwest has been struggling to find ways to grow sales as its customers continue to give up traditional land line phones. It faces competition from cable companies and cell phone providers who are luring away customers.
But Hodulik said "fundamentals in the business and wholesale markets are likely to improve in 2010 after less than stellar results in 2009."
Sales to these two markets make up 64 percent of Qwest's total sales, and because they haven't been strong they have led investors to "largely disregard the exceptionally strong free cash flow generated by the company," the analyst said.
"We believe improvement in revenue trends will cause the Street to refocus on the cash, which we expect to remain strong through 2011," he added.
Qwest's shares rose 19 cents, or 4.7 percent, to $4.27 in afternoon trading. The stock has traded in the 52-week range of $2.86 and $4.87.