UPDATE: Morgan Stanley Downgrades AT&T to Equal-Weight on Valuation, Soft Revenues

In a report published Wednesday, Morgan Stanley analyst Simon Flannery downgraded the rating on AT&T T from Overweight to Equal-Weight. In the report, Flannery noted, “We see three factors driving our rating change: 1) Valuation – AT&T currently trades at a 2013e P/E of 15.5x, well above historical averages after a strong performance in recent months. It still offers the top dividend yield in the DJIA at 4.6%, almost 300bp above the 10-year treasury, which provides downside support in our view, in a low interest rate environment. 2) We believe the stock has benefitted from the aggressive share repurchase program in recent months, with the share count dropping ~7% in the past year. The company recently indicated that the level of buybacks will slow in coming months as AT&T becomes more opportunistic in its repurchases. 3) 1Q earnings showed some signs of incremental top line pressure in wireless and wireline reflecting macro, competitive and market maturity factors, which could continue in our view.” AT&T closed on Tuesday at $39.00.