AT&T Believes It Is Creating A Sustainable Competitive Advantage

Barclays’ Amir Rozwadowski mentioned AT&T Inc.’s T ability to leverage multiple and multiyear cost optimization initiatives provides confidence in the defensibility of the company’s earnings and cash flow growth.

Rozwadowski maintains an Overweight rating on the company, with a price target of $42.

Sustainable Advantage

Although only limited details are available regarding AT&T’s new OTT services, the company’s content partnerships remain largely on track, indicating that visibility into new products were likely to significantly improve in 2H16.

Rozwadowski noted that the company’s cost reduction initiatives were already bearing fruit, and AT&T expected to emerge as the lowest cost per bit provider, “creating what it believes is a structural and sustainable competitive advantage beginning in 2017.”

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If the company is able to achieve this target, it would offer go-to-market flexibility and lower capex and opex intensity.

Differentiated Services

“While we would expect some of these savings to filter to customers, visibility on a ramping free cash flow story — potentially towards the $20.0 billion level — should improve,” the analyst stated.

Rozwadowski also pointed out that the company’s comfort in driving cash flow and margin improvement, irrespective of top line fluctuations, indicates status quo on AT&T’s current subscriber strategy.

However, according to the Barclays report, “confidence in 1) being able to deliver a unique OTT offering beginning in 4Q, and 2) its expectations for positive video adds underscores the desire to differentiate via an integrated service offering.”