On Mar 19, 2015, we issued an updated research report on AT&T, Inc. (T.
The company is likely to witness strong momentum in both its Wireline and Wireless businesses. Continued strength in the company’s smartphone business owing to its mobile share plan is driving the wireless business. Further, AT&T is the leading provider of WiFi (wireless broadband) connectivity, which is also a key growth driver.
AT&T’s LTE network serves as the benchmark of mobile technology and the sole source of income for many operators across the world. The company presently provides LTE service to more than 300 million people and has also extended its U-verse broadband services to 57 million customer locations. AT&T also installed fiber network in 725,000 business locations. As of Dec 31, 2014, smartphone sales accounted for 94% of the company’s post-paid sales. Meanwhile, AT&T collaborated with NEC Corp. for the launch of the 4G LTE smartphone – NEC Terrain – with the aim of expanding coverage.
With respect to the Wireline segment, management expects positive business trends to continue, going forward. In the coming months, Wireline growth will likely be driven by strong revenues and the launch of enhanced services. Consistent subscriber growth in the U-verse segment is expected to continue in the coming days as well, leading to higher revenues. As of Dec 31, 2014, U-verse contributed more than $15 billion in annualized revenues, reflecting 21.9% growth year over year and nearly two-thirds of the company’s total consumer revenue.
On the flip side, AT&T remains challenged by aggressive pricing plans of direct competitors such as Verizon and Sprint, designed for iPhones and 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 impact AT&T’s high-end handset sales and challenge subscriber retention. Additionally, investments in both Project VIP and Agile along with it shift from the subsidy model to wireless will keep margins under pressure.
AT&T currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in this sector include Chunghwa Telecom Co., Ltd. CHT, China Unicom (Hong Kong) Limited CHU and China Mobile Limited CHL. All these stocks sport a Zacks Rank #1 (Strong Buy).
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