On Feb 7, we maintained our Neutral recommendation on
), reflecting the company's favorable aspects like higher
smartphones adoption, impressive U-verse gain and the planned
investment program. These were partially offset by constant
access line losses, competitive threats, heavy iPhone subsidies
and federal regulations. The ace communication company holds a
Zacks Rank #3 (Hold).
Why Kept at Neutral?
On Jan 24, AT&T posted fourth quarter 2012 results, with
adjusted earnings per share missing the Zacks Consensus Estimate.
However, revenues surpassed our expectation on strong performance
from the wireless segment.
Looking ahead, we see AT&T as favorably positioned for this
year, with strong growth prospects in both wireline and wireless
businesses. While continued strength in smartphone and branded
computing device sales are fueling growth in its wireless
business, wireline is also improving on its U-verse and strategic
Further, lucrative acquisitions and collaborations are also
expected to support the high performance level of the company
over the next few quarters.
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The company, through its Project Velocity IP, will invest $14
billion in the coming three years to considerably expand the
wireless (investment of $8 billion) and wireline (investment of
$6 billion) Internet Protocol (IP) broadband networks. We believe
that the investment program will provide AT&T with a
high-potential growth platform, leading to higher revenues and
earnings per share.
AT&T - second largest provider of wireless services in North
) - is concentrating on expanding its subscriber base with the
launch of attractive handsets coupled with new data plans.
Recently, the company unveiled plans to roll out re-vamped,
re-engineered and re-enhanced smartphones - BlackBerry Z10 and
BlackBerry Q10 - that will run on 4G Long-Term Evolution (LTE).
However, risk factors such as a saturated wireless market,
persistent losses in access lines, labor union issues and
aggressive pricing plans of direct competitors are likely to
weigh on the company's revenues and margins in the near to medium
For first and second quarters of 2013, the Zacks Consensus
Estimates for earnings are 63 cents and 71 cents per share,
respectively. This reflects a respective year-over-year growth of
5.1% and 7.2%.
Other telecom stocks that will likely perform impressively in the
coming months are
). Both the stocks carry Zacks Rank #2 (Buy).