AT&T Earnings Preview: What We're Watching

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AT&T ( T ) is expected to announce its Q2 earnings on July 21st. Over the last few quarters, we have observed that the growth of new subscribers additions has declined for AT&T. We expect this trend to continue this quarter as well given general mobile market saturation and heightened competition from Verizon ( VZ ) and Sprint ( S ). However, the major factor to look out for in the upcoming earnings release is whether the loss of Apple's ( AAPL ) iPhone exclusivity has started to hurt AT&T or not.

Our $38 price estimate for AT&T stock is about 25% above market price.

Subscriber Additions Slowing

During the last few quarters, AT&T has experienced a slowing in new subscriber additions. For example, AT&T added 2 million net subscribers in Q1 compared to 2.8 million net subscribers in Q4 2010. We believe this slowdown will continue and hence don't expect its market share to make any significant gains in future.

iPhone on Verizon Not a Big Issue

The iPhone 4 was launched on Verizon's network in February 2011. It was widely believed that Verizon would snatch iPhone subscribers from AT&T largely because of its superior network connectivity.

However, AT&T's last quarter results did not show any signs that iPhone subscribers were defecting away from it. On the contrary, AT&T saw about 3.6 million iPhone activations during Q1 2011, out of which about 23% were new customers to AT&T. Compared to the 2.7 million iPhone activations that AT&T had in Q1 2010, this was a notable increase.

This Quarter

We don't expect to see mass defections from AT&T's iPhone subscriber base this quarter either as its $325 early termination fee continues to be a big deterrent for its customers to switch carriers. Furthermore, AT&T has started to take steps to improve its network performance, which was a major complaint among iPhone subscribers before.

See our complete analysis for AT&T stock here



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , S , T , VZ

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