MCI Worldcom: A Stock Analysis

WorldCom won the bidding war for MCI in late-1997 ("WorldCom's $37-Billion Bid Persuades MCI Board" 1997). At that time, the deal was the largest corporate acquisition-merger in history. Since that time, the magnitude of the acquisition-merger has been topped at least twice.

Over the past year, the new MCI WorldCom has been busy redefining itself, establishing market positions for the future, and working its way through the final processes of regulatory approval in both North America and Western Europe (Schmelling, 1998). The common stock for the post acquisition-merger company trades on NASDAQ under the name MCI WorldCom, Inc. under the stock symbol "WCOM."

This research analyzes the common stock performance of MCI WorldCom. This analysis reflects the past and present performance of the stock, as well as reviewing the potential for the future performance of the stock.

Immediately following the acquisition-merger in December 1997, the MCI WorldCom common stock traded at a share price of $33. Over the past 12 months, the market has vacillated, however, the general trend has been upward, with a closing share price on 2 December 1998 of $61.625. A graphic portrayal of the market performance of the MCI WorldCom common stock over the past year is presented in Chart 1, which may be found on the following page.

MCI WorldCom Common Stock Market Performance: 1 December 1997- 2 December 1998

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common stock during the present period also has been commendable. Based on closing prices, the market price of the stock increased by 11.9 percent over the past 30 days. The next issue that must be considered in how the MCI WorldCom common stock is likely to perform in the future. As yet, the post acquisition-merger MCI WorldCom has not earned a profit. Therefore, it is not possible to compare a price/earnings (P/E) ratio for the company with those for the industry, sector, and market. The beta for the company's common stock, 1.51, however, indicates that the price fluctuations for the MCI WorldCom common stock may be expected to be greater than those for the market [beta 1.00], and much greater than those for the industry [beta 0.82] and the sector [0.84]. When one compares market price to cash flow, however, the MCI WorldCom common stock looks quite good compared the industry, sector, and marker. The market ratio of +21,34, the sector ration of +15.35, and the industry ratio of +4.29, all pale in comparison to the company ratio of -37.85. Another way of looking at the relationship between these ratios, however, is to state that the market price of MCI WorldCom is insupportably high. International revenue rose 55 percen

Category: Economics - M