Shares of WorldCom Inc. dropped below $1 for the first time ever after an analyst long seen as a company supporter cut his rating of the telecom.
Salomon Smith Barney analyst Jack Grubman downgraded his WorldCom outlook Monday from neutral to underperforming. Grubman has long been bullish on the telecommunications sector.
The ratings downgrade is not exactly news for WorldCom, which has seen its stock battered this year after debt warnings and bond rating cuts.
Shares of the Clinton-based company fell 31 cents, or 25 percent, to close at 91 cents in trading on the Nasdaq Stock Market, but gained a penny in after-hours trading.
WorldCom shares traded as high as $15 in January.
WorldCom's stock drop also pulled down shares of its MCI tracking stock, which was down 44 cents, or 19 percent, to $1.81. MCI shares will cease trading July 12 and be converted into 1.36 shares of WorldCom stock.
Grubman said in his report that businesses are not spending money on communications equipment, and that he expected a drop in WorldCom's income because of it. He also cited the company's massive debt, some $32 billion, for the downgrade.
Analyst Drake Johnstone of Davenport & Co. said investors may be "waking up'' to realize the stock has been overpriced.
As part of a company shake-up that saw former chief executive Bernie Ebbers resign, WorldCom said earlier this year it would have a restructuring plan in place by mid-June, including a new $5 billion loan. That the loan hasn't yet been secured "leaves some questions about (WorldCom's) operation,'' Johnstone said.
"The primary reason for those downgrades is that the rating agencies were concerned that WorldCom has not been able to announce an agreement on that $5 billion loan,'' Johnstone said. "It means they're perhaps having difficulty in their negotiations.''