Wells Fargo Comments On AT&T's 8-K Filing, Maintains Bullish Stance

In a report published Thursday, Wells Fargo analyst Jennifer Fritzche commented on

8-K filing and management's comments regarding trends seen across both the wireless and wireline segments. "We would characterize the update as mixed, as continued strong momentum in Mobile Share Value (MSV) take-rate combined with its Cricket integration are expected to weigh on service revenue and margins on the wireless side, while strategic services and consumer U-verse growth is expected to be offset by the sale of its CT assets and TV programming costs in wireline," Fritzche wrote. "We would note AT&TT indicated postpay churn has been trending down year over year and sequentially in Q1 2015 (versus 1.07 percent in Q1'14 and 1.22 percent in Q4'14), and is contrary to competitor comments made on their churn trends." Fritzche expanded that the company's MSV plans continue to pressure wireless service revenue in the first quarter – as such sequential service revenue pressure is expected to be similar to what was seen in the fourth quarter where it declined $350 million. The analyst added that wireless margins are expected to be pressured in the first quarter due to MSV plan adoption and Cricket operational results, though the company expects full year fiscal 2015 wireless margins to grow year over year from 42.0 percent in 2014. Fritzche also commented that AT&T "importantly" reiterated its fiscal 2015 guidance. The company also noted that its acquisition of

is expected to close in the first half of 2015 while synergies from the acquisition is expected to exceed initial commentary from May 2014. As a result, the analyst adjusted her fiscal 2015 estimated revenue to $133 billion from $134 billion, while an earnings per share estimate remains unchanged at $2.55. Fiscal 2016 revenue estimates were also lowered to $136 billion from $137 billion while earnings per share is now expected to be $2.60 versus a prior estimate of $2.64. Shares are Outperform rated with a $36 to $38 valuation range.