AT&T Inc. has its act together in wireless, but that’s already well understood by Wall Street, according to LightShed Partners analysts.
After refocusing its business on connectivity in the wake of ill-fated media ventures, AT&T
has seen success with its wireless initiatives, and that progress is reflected in the stock’s relative performance. As AT&T’s stock has outperformed Verizon Communications Inc.’s
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.
The current sentiment is “quite a difference from late 2021, when investor disdain for AT&T was perhaps best expressed by a consensus 2022 post-paid phone net add estimate of [900,000],” the analysts continued. AT&T went on to record upwards of 2 million net additions that year.
The LightShed team expects AT&T to outperform T-Mobile US Inc.
this year with its wireless-service revenue growth, but despite the company’s “commendable” relative performance, the analysts are no longer recommending AT&T’s stock. They downgraded it to neutral from buy Tuesday.
The analysts’ projections for wireless-service revenue growth are ahead of AT&T’s own forecast but are barely above the consensus view, and they also embed “specific risk.”
“We assume a price increase by AT&T that has not been announced,” Piecyk and Galone wrote. “In addition, the rise of free line promotions could have a larger impact than we expect, particularly when pushed by cable operators that no longer report wireless EBITDA [earnings before interest, taxes, depreciation and amortization] losses.”
AT&T also must deal with its declining wireline business. While wireline, which includes things like home internet and legacy landlines, is not as exciting as AT&T’s wireless business, it still makes up about 35% of the company’s revenue. That means that declines in this part of the business can lead to slowing growth for AT&T’s overall service revenue.
“Consumer fiber broadband is a good story, but it represented just 15% of wireline at the end of 2022 and is not enough to offset the declines in the legacy consumer and enterprise businesses,” Piecyk and Galone wrote. “The Gigapower [joint venture] with BlackRock is an innovative business model for an incumbent telco, but doesn’t move the needle enough.”
They suggest that AT&T “consider more transformative moves to exit declining wireline businesses and structurally increase the size of their consumer wireless business,” since, they note, bundling is the future of the industry.