AT&T stock is no longer a buy despite “commendable” performance, analysts say

AT&T Inc. acts together in wireless, but this is already well understood by Wall Street, according to analysts at LightShed Partners.

After refocusing its business on connectivity in the wake of ill-fated media ventures, AT&T T,
has seen success with its wireless initiatives and that progress is reflected in the stock’s relative performance. As AT&T’s stock outperformed Verizon Communications Inc.’s VZ,
over the past year, its dividend yield has fallen below Verizon’s — “as it should have,” LightShed Partners analysts Walter Piecyk and Joe Galone wrote.

Current sentiment is “a far cry from late 2021, when investor scorn for AT&T was perhaps best expressed by a consensus 2022 post-paid phone network increase estimate of [900,000]”, continued the analysts. AT&T went on to post more than 2 million net adds that year.

LightShed Team Expects AT&T To Surpass T-Mobile US Inc. TMUS,
this year with wireless service revenue growth, but despite the company’s “commendable” relative performance, analysts are no longer recommending AT&T’s stock. They have downgraded it to neutral since Tuesday’s purchase.

Analyst projections for wireless services revenue growth are ahead of AT&T’s forecasts, but are just above the consensus view and also incorporate “specific risk.”

“We assume an unannounced price hike from AT&T,” Piecyk and Galone wrote. “Also, increased toll free line promotions could have a bigger impact than we expect, particularly if driven by cable operators no longer reporting wireless EBITDA [earnings before interest, taxes, depreciation and amortization] losses.”

AT&T also has to contend with its declining landline business. While the landline, which includes things like home Internet and legacy landlines, isn’t as exciting as AT&T’s wireless business, it still accounts for about 35 percent of the company’s revenue. This means that declines in this part of the business may lead to a slowdown in AT&T’s overall services revenue growth.

“Consumer fiber broadband is a good story, but it accounted for only 15% of fixed line at the end of 2022 and is not enough to offset the decline in consumer and legacy business activities,” Piecyk and Galone wrote. “The Gigapower [joint venture] with BlackRock it’s an innovative business model for an incumbent telecommunications company, but it doesn’t quite move the needle.”

They suggest that AT&T “consider more transformative moves to get out of the declining wireline business and structurally scale up its consumer wireless business,” as, they note, the bundling is the future of the industry.

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