On Feb 11, 2014, we reaffirmed our Neutral
). The company's fourth quarter adjusted earnings surpassed the
Zacks Consensus Estimate and also improved from the year-ago
Revenues also increased year over year and was ahead of our
expectation. The Zacks Consensus Estimate for the first
quarter earnings is pegged at 68 cents per share, representing
AT&T currently has a Zacks Rank #3 (Hold).
For 2014, AT&T expects revenue growth of 2-3% and adjusted
earnings per share is estimated to grow in mid single digits
excluding the impact of share buybacks. We believe this
optimistic outlook is triggered by contribution from wireless
AT&T's wireless business, in particular the post-paid
segment, is benefiting from promotional strategies that it had
undertaken. The company's pre-paid market is also flourishing as
evidenced by strong customer additions. In 2013, AT&T entered
the home security and automation service market with the launch
of Digital Life package. AT&T is also expanding its managed
security solutions including mobile security solution.
The company boasts the best Internet speeds in the industry as
it is the only U.S. carrier that provides 4G network through both
Long Term Evolution (LTE) and High-Speed Packet Access Plus
(HSPA+) technologies. AT&T's LTE network serves as the
benchmark of mobile technology and the life-blood for operators
across the world.
The company is running ahead of schedule in 4G LTE service
deployment and expects to cover 300 million users by mid 2014.To
support these services, the company offers several 4G LTE
smartphones and tablets. Smartphone sales were solid at $7.9
million in the quarter, resulting in higher data usage. As of Dec
31, 2013, smartphone comprised 93% of all post-paid sales.
AT&T collaborated with NEC Corp. for the launch of 4G LTE
hardy smartphone - NEC Terrain - with the aim of expanding
However, AT&T remains challenged by aggressive pricing
plans of direct competitors such as
) for iPhones and other smartphones. Further discounts on its
pricing plans could hurt near-term earnings. Smaller wireless
carriers also offer cost effective voice and data plans. This may
negatively influence AT&T's high-end handset sales and
challenge subscriber retention.
Further, on the smartphone side, the company is facing cost
headwinds as price-sensitive customers seek low-end 2G feature
) iPhones are enjoying a strong growth momentum, high marketing
and subsidy costs associated with the product is restricting
As a result, we maintain our cautious stance on the
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