UBS Downgrades AT&T On Competition Concerns

While AT&T Inc T shares already reflect cost savings and buybacks, competition in wireless is increasing and could intensify further in the second half of the year, according to UBS.

The Analyst

UBS analyst John Hodulik downgraded AT&T from Buy to Neutral, while reducing the price target from $42 to $39.

The Thesis

The decline in AT&T’s earnings could accelerate from 0.3% in 2019 to 1.4% in 2020 due to continued Pay TV headwinds and investment in HBO Max, Hodulik said in the note.

The company had faced competition in 2019 its wireless business, which generates around 50% of total profits and is a key growth driver, the analyst said. He added, however, that competition is likely to intensify with the launch of Apple Inc’s AAPL 5G iPhone in the second half of 2020, as this could raise upgrade rates, increase churn and result in intense promotional activity.

Hodulik expects the industry to be significantly impacted by cable in 2020, with a boost from lower wholesale rates. He further wrote, “This mix makes us increasingly worried about the profitability of the US wireless sector.”

The analyst added that AT&T’s Entertainment and Warner Media units continues to face secular pressure.

Price Action

Shares of AT&T were trading broadly flat at $37.07 at time of publication.

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