AT&T's Deal With Time Warner Will Create An Overhang For Bulls

With the AT&T Inc. (NYSE:T) and Time Warner Inc (NYSE:TWX) merger likely coming soon, Bank of America Merrill Lynch analyst David Barden sees this deal creating an overhang for AT&T investors.

“We are moving our AT&T rating from Buy to Neutral and lowering our PO from $46 to $39 on lower positive catalyst visibility (corp. tax reform) and the potential for technical headwinds to emerge related to the Time Warner merger. We see few reasons the deal would fail to close as expected,” Barden said.

The merger is set to close in 2H, and Barden specifically highlighted the burden will come in the form of a $40 billion new equity insurance.

There Are Some Positive ... But

Barden noted the Corporate tax reform was the most promising catalyst for shares of AT&T. However, “following Congress’ failure to pass healthcare reform and given the point in the year, our BofAML economist and, we believe, the market[s] have now ratcheted back expectations for the probability, timing and magnitude of any tax reform.”

Lowering Q2 Metrics

“2Q voice, video and broadband metrics we expect will be seasonally challenged and with AT&T likely losing share in each category, we believe positive fundamental surprises pre-close are unlikely. We expect -1k broadband subscribers, down from +115k last quarter. Video subscriber declines at an industry level appear to be moderately accelerating and we are lowering our 2Q17 video subscriber loss from –170k to –335k,” Barden wrote.

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