Morgan Stanley Says AT&T Risk Skewed To The Downside Following Q4 Print

Simon Flannery of Morgan Stanley on Wednesday commented that AT&T Inc. T reported a mixed fourth quarter results.

“Earnings per share (before one time items) of $0.55 was higher than our estimate and consensus' $0.55,” Flannery wrote. “Consolidated revenue was better, due to wireless equipment and wirelines, although margins were lower, with weakness in wireless.”

Flannery notes that on the wireless side the company reported negative phone net adds, the highest churn rate through the first quarter 2008 and lower postpaid average revenue. The analyst also points out the company's $9.9 billion of free cash flow in 2014 was lower than its guidance of $11 billion and implies a 97 percent payout of free cash flow.

According to Flannery, income oriented investors should be pleased with the company's commitment to improve its dividend. On the other hand, there still exists several negative catalysts including the results of the AWS-3 spectrum auction, proposed net neutrality rules set to be revealed on February 5, a certain degree of regulatory risk surrounding the agreement with DirecTV and continued heightened promotional activity from the wireless carriers.

Shares are Equal-weight rated with a $34 price target.