Embarq a Sell Post-Merger News

We maintain our Sell rating for Embarq (EQ), the fourth largest local U.S. telecommunications carrier that was spun off from Sprint Nextel (S - Analyst Report) in 2006 and has agreed to consolidate with CenturyTel (CTL - Analyst Report) under an $11.6 billion merger deal (expected to close in 2Q 2009).

Lower revenue forecasts for 2008, acceleration of access line loss, recently revised guidance, and expectations of lower valuation levels for CenturyTel following the merger support our thesis.

We believe that the local phone business in North America, in particular service offered by regional carriers, has significant challenges ahead as local access lines continue to decline (reflected in EQ s most recent quarterly results) and as consumers and business customers migrate to alternative solutions, including VoIP, wireless and cable offerings.

We also believe pricing pressure and the need to invest further in broadband infrastructure may strain balance sheet conditions as the high level of debt and weak cash position remain concerning.

Anindya Barman contributed to this report.

Read the full analyst report on EQ

Read the full analyst report on CTL

Read the full analyst report on S