Ahead of the Bell: Embarq

A JPMorgan analyst upgraded Embarq Corp. Tuesday, citing a new company focus on balancing debt payoffs with share buybacks and acquisitions.

Analyst Jonathan Chaplin upgraded the company to "Equal weight" from "Neutral," saying the telecommunications company may see $1 billion of free cash flow in 2008, potentially leading to a dividend increase or buyback program.

While a downturn in the housing market has trickled down into other sectors, the dip should decrease Embarq's capital expenditures, which in turn would boost free cash flow, he said.

"We think flexibility has substantially improved and there is meaningful upside for equity shareholders," Chaplin said in a client note.

He warned, however, that the stock may drop if a dividend or buyback does not happen.

Also Tuesday, Embarq said its chairman, president and chief executive, Dan Hesse, has resigned to become president and CEO of Sprint Nextel Corp. General Counsel Tom A. Gerke was appointed as interim chief executive, effective immediately.

Shares fell 66 cents to $47 in premarket trading Tuesday.