We maintained our Neutral recommendation on
) following appraisal of third quarter results. AT&T enjoys
strong position in the telecom sector, has lucrative alliances
with other major companies and is enjoying positive business
trends. However, these will likely be offset by persistent access
line losses and aggressive pricing plans by rivals.
Headquartered in Dallas, Texas, AT&T stands as the second
largest provider of wireless services in North America after
Verizon Communications Inc.
). AT&T offers a wide range of communication and business
solutions that include wireless, local exchange, long-distance,
data/broadband and Internet, video, managed networking, wholesale
and cloud-based services.
AT&T reported mixed third-quarter performance. While earnings
per share moved ahead of the Zacks Consensus Estimate, revenue
fell short of our expectation.
For the coming months, we expect the company to display strong
momentum in both wireline and wireless businesses. While
continued strength in smartphone and branded computing device
sales are fueling growth in wireless business, the wireline
segment is well positioned backed by its U-verse and strategic
AT&T offers the best Internet speeds in the industry as it is
the only U.S. carrier that provides 4G networks through both Long
Term Evolution (LTE) and High-Speed Packet Access Plus (HSPA+)
technologies. The company has also started selling
) new iPad Mini to its customers at a reduced price.
Additionally, AT&T maintains a solid balance sheet in the
telecom industry with net debt-to-adjusted EBITDA ratio of 1.42
times at the end of the third quarter. The company delivers
substantial returns to its shareholders through attractive
dividends and share repurchases. We believe that the higher
dividend along with the increased share repurchase program
reflects the company's confidence in its ability to generate
strong cash flows.
Despite these positives, we prefer to remain on the sidelines as
the saturated wireless market along with an imbalance of
supply-demand fundamentals and cut-throat competitive scenario
will keep the stock under pressure.
AT&T's wireline division is also struggling with persistent
losses in access lines with a glut of voice-over-Internet
protocol (VoIP) service providers and aggressive triple-play
(voice, data, video) offerings by the cable companies.
Moreover, the company's domestic operations are subject to
regulations by the Federal Communications Commission (FCC) and
other federal, state and local agencies. These regulatory regimes
frequently restrict the company from providing certain products
or services in designated areas, thus affecting the overall sales
Hence, considering these factors, we believe that there is little
room for further upside and expect the stock to trade in line
with other group members.
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