Business

Analysts say AT&T stock is no longer being bought despite ‘pragmatic’ performance


According to analysts at LightShed Partners, AT&T Inc. worked together in wireless, but Wall Street got it.

After refocusing its business on connectivity after bad media projects, AT&T
T,
-1.51%

has enjoyed success with its wireless initiatives, and that progress is reflected in the stock’s relative performance. Because AT&T stock outperformed Verizon Communications Inc.
VZ,
-1.99%

Over the past year, its dividend yield has fallen below Verizon’s — “which should have been,” wrote LightShed Partners analysts Walter Piecyk and Joe Galone.

The current sentiment is “very different from late 2021, when investor disdain for AT&T is perhaps best demonstrated by the 2022 postpaid phone net worth estimate of [900,000],” continued the analysts. AT&T went on to record more than 2 million net additions that year.

The LightShed team expects AT&T to outperform T-Mobile US Inc.
TMUS,
+0.47%

wireless services revenue growth this year, but despite the company’s relatively “comfortable” performance, analysts no longer recommend AT&T stock. They downgraded it to neutral from buy on Tuesday.

Analysts’ projections for wireless service revenue growth are ahead of AT&T’s own forecasts but are only slightly above consensus, and they also carry “specific risks”.

“We expect AT&T to raise prices that have not been announced yet,” wrote Piecyk and Galone. “Additionally, an increase in toll-free line promotions could have a bigger impact than we expect, especially when driven by cable operators that are no longer reporting wireless EBITDA. [earnings before interest, taxes, depreciation and amortization] losses.”

AT&T also had to deal with a declining wireline phone business. Although wireline, which includes things like home internet and old landlines, isn’t as exciting as AT&T’s wireless business, it still accounts for about 35% of the company’s revenue. That means a slowdown in this business could lead to slower growth for AT&T’s total services revenue.

Piecyk and Galone write: “Consumer fiber broadband is a good story, but it represents only 15% of wireline transmissions by the end of 2022 and is not enough to offset the decline in businesses consumer and traditional businesses”. “Gigapower [joint venture] with BlackRock being an innovative business model for an existing telecommunications company, but still not enough.”

They suggest that AT&T “considers more transformational steps to exit declining wireline businesses and scale up their consumer wireless business in a structured way,” as they Note that packaging is the future of the industry.

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