Qwest Communications' (Q) former executives are approaching their day in court for charges related to fraudulent financial statements and insider trading violations that punished the stock from its high of $64 in March 2001 to a low of $1.11 in August in 2002.

The embattled Qwest's new "Spirit of Service" mantra is driving the company forward at a time when demand for broadband to support media and information delivery continues to grow. Qwest recently demonstrated its new commitment to customers by refusing to release telephone records to the National Security Agency, pointing out that doing so would violate federal privacy laws.

qwest_060806_1r%20(2).GIF

Qwest has its roots in providing local service to its customers in Western states like Arizona, Colorado, and Wyoming. While local voice and long distance totaled more than $2 billion, or 61% of revenues for the first quarter ending March 31st, Qwest realizes that both wireline services are shrinking as customers continue to turn to wireless and voice over IP solutions like Skype (EBAY) and Vonage (VG). Qwest reported net income of $88 million for the first quarter, up 54% from a year ago. The improvement in earnings was driven by savings in operating and interest expenses as sales remained relatively flat. In order to combat expected wireline losses, Qwest has begun offering bundles of voice, wireless and broadband service to customers.

Competitors like Level 3 (LVLT) have made acquisitions a priority to hedge against the risk of not being prepared to meet future capacity demands in metropolitan areas. In May, Qwest announced the acquisition of the metropolitan Ethernet service supplier OnFiber Communications. Qwest expects the Ethernet market to grow 50% annually, driven by commercial and consumer demand. The deployment of 3G wireless by service providers Verizon (VZ), Cingular and Sprint Nextel (S) has been a key driver of growth. OnFiber has built a highly profitable business that focuses on commercial high-speed data transmission in major U.S. cities, from San Francisco to Boston, and down to the beaches of Miami.

While net income has been negative for the past 2 years, Qwest's focus on broadband technologies broadens its reach outside of its familiar Western states and gives them a new revenue stream that will supplant its fading wireline service model.

qwest_060806_2r%20(2).GIF

Early investors who plunged in while the stock was pegged at $4 have much to celebrate now that the stock has surged above $7. Qwest insiders have begun to get into the spirit, putting their dollars behind the vision by acquiring over 1 million shares since the beginning of the year. In addition, value investing pioneer Bill Miller of Legg Mason's Value Trust Fund lists Qwest Communications as one of its largest holdings along with competitor Sprint Nextel. As the enhanced communication infrastructure build-out continues to gather steam, and as telecom technology continues to evolve, Qwest appears to be moving beyond its litigious history and forward into profitability.

Related Articles
  1. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center