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Detour in Qwest's Journey

Shares flatten out as growth worries reassert themselves.

Qwest (Q) improved its track record, but all that investors seem to care about is the next race.

CEO Dick Notebaert called 2006 "a turning point in the journey." The Denver telco swung to its first full-year profit since 2003 -- providing proof, says Notebaert, that the company is in solid shape.

During the telecom industry collapse, Notebaert and his team took Qwest from the brink of bankruptcy in 2002 to a modest level of stability today, marked by a 0.1% annual revenue growth rate.

"If you look at Qwest over the last four years, you'll see we've kept our promise, we've done what we said we'd do," said Notebaert in an interview Thursday. "Our goal isn't to spike the ball," he continued. "Our goal is to be sustainable."

Wall Street has acknowledged Qwest's recovery. The company's shares gained 48% last year. But money managers are forward lookers, and Notebaert and company didn't provide a particularly compelling forecast for 2007.

Qwest shares fell 7 cents to $8.18 Thursday.

In fact, after missing the free cash flow expectations some investors had for the fourth quarter, there's a concern that the new target of about $1.8 billion next year is too high.

"They lost a ton of credibility," says one investor who holds the stock. "Seriously, how can they guide to $1.8 billion when they didn't even hit the high end of their 2006 guidance."

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In November, the company was optimistic about its free cash flow numbers. The feeling was that Qwest would hit or even exceed the $1.5 billion level at the top of the predicted range.

But December brought crippling storms to Denver and the West Coast. The company says it took on some big repair costs and lost ground on new installations.

The suddenly crimped cash flow came as a shock to investors who were banking on a little upside surprise to give the stock an added lift.

That may seem like a minor flaw in an otherwise respectable performance, but with Qwest's heavy emphasis on steady and slow progress, investors have very few stock-moving scenarios to bet on.

Notebaert said the company gave a free cash flow range and hit it squarely in the middle. As for 2007 guidance, Notebaert said the company didn't specify $1.8 billion free cash flow for 2007, but did say execs expected an additional $400 million over the $1.4 billion last year.

The CEO was not apologetic about the company's obsession with its moderate approach to business.

"We feel being conservative is the best place to be," Notebaert said. "We want to be profitable every quarter. I've said 'sustainable' about 3,000 times now."

Over the years people have been critical of that style and have urged the company to be more dramatic, says Notebaert.

"We didn't want to go like a rocket," says Notebaert, "and have it burn out."