Updated Research Report on AT&T Inc. - Analyst Blog

On May 23, 2014, we issued an updated research report on AT&T Inc. T. The company's first-quarter 2014 adjusted earnings per share surpassed the Zacks Consensus Estimate and also improved on a year-over-year basis. Operating revenues also grew from the prior-year quarter level and steered ahead of our expectation. Currently, the Zacks Consensus Estimate for AT&T's second quarter earnings per share is pegged at 70 cents, representing an annualized growth rate of 4.05%.

AT&T remains focused on its project VIP initiative, which targets business expansion. These initiatives target 4G LTE expansion, spectrum and network capabilities enhancement, 8.5 million new U-verse service customers and the addition of 57 million broadband users, covering 75% of the company's wireline footprint by the end of 2015. In addition, the company is also seeking expansion of its fiber network to include 1 million additional customer locations by 2015. This project underlines the company's efforts to meet the growing demand for high-speed Internet. We believe that this investment program will provide AT&T with a high-potential growth platform for revenues and earnings.

Moreover, to support network infrastructure, AT&T acquired 39 lower 700 MHz B Block spectrum licenses from Verizon Communications Inc. VZ for $1.9 billion in 2013. In Dec 2013, AT&T completed its lease transaction for 9,000 towers and sale of approximately 600 towers with Crown Castle International Corp. CCI for $4.83 billion.

Acquisitions and strategic collaborations play a major role in shaping AT&T's growth story. Earlier this month, the company signed a definitive agreement to buy DIRECTV DTV for $48.5 billion. The deal is expected to be a combination of cash and stock bid of $95.00 per share based on AT&T's May 16 closing price. The acquisition, when complete, will promote AT&T in the domestic pay-TV business to the second-largest position.

Prior to that, in Mar 2014, AT&T closed the Leap Wireless International Inc. acquisition for $1.2 billion. This buyout gives AT&T control over Leap's spectrum in the PCS and AWS bands covering 137 million people, thereby enhancing the spectrum base of the former. Further, the deal endows AT&T with a stronger pre-paid business line with the incorporation of the Cricket brand.

However, AT&T's wireline division is struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. These are continually weighing on the company's revenues and margins. Additionally, the division is highly unionized with roughly 55% of 256,000 employees represented by the Communications Workers of America (CWA).The expiration and failure to reach new contracts with the union labors might negatively hurt the company's revenue and margins going ahead.

AT&T has a Zacks Rank #3 (Hold).