Another chapter in the WorldCom ( WCOM) mystery is about to unfold as the company prepares to open its books on fourth-quarter earnings Thursday morning. After a fierce four-week selloff fueled by post- Enron accounting willies and post- Global Crossing debt jitters, not to mention a
possible margin call on CEO Bernie Ebbers, observers say WorldCom will likely report that business is indeed gloomy, but nowhere near as bad as the worst-case scenario would have it. Considering how steeply WorldCom has fallen in recent weeks, that could easily spell a buying opportunity starting tomorrow. "People are running around saying the sky is falling," says Stuart Conrad of 3 Squared Capital Partners, an Atlanta-based hedge fund. "Clearly a lot of these concerns have been blown way out of proportion." "Does business suck? Sure. Have they been aggressive in accounting? Sure. Are they going to take some big write-offs? Sure," says Conrad, who is short the stock yet thinks it's oversold at this point. But "these things are known." "The question is what's the appropriate punishment," continues Conrad. "Let's not forget, the stock is trading at the level it was in February 1993." Meanwhile, WorldCom fans would argue that this is hardly the same company it was nine years ago. The multibillion-dollar acquisition juggernaut that rolled up 60 companies also gained a mighty customer list in the process, giving the company a hefty cash stream to the tune of $6.6 billion in operating greenbacks in the first nine months of last year. But as Qwest ( Q) and AT&T ( T) showed us last week, overcapacity and price-cutting have squeezed margins at the big telcos. By some estimates, long-distance prices for businesses have fallen 50% in the past year, while traffic volumes have also been on the slide. WorldCom shifted some of the long-distance burdens onto its consumer tracking stock, MCI ( MCIT). But since the company consolidates its financial results, the tracker is merely an accounting exercise to help investors appreciate the value of WorldCom's core business services minus slower-growing consumer sales.