Jul 24, 2008 AT&T Inc. (T): Estimate stability will be a catalyst for the stock. Are we there? WHAT'S CHANGED: Post 2Q08, our 2008 revs/EBITDA are $125.4bn/$45.6bn (-0.5%/+0.2%) and our EPS is $2.98 (down $0.03). This includes pressured wireless ARPU, wireline revs, and D&A somewhat offset by higher wireline margins. IMPLICATIONS: *Searching for estimate stability. AT&T has seen a steady downwards movement in EPS estimates over the course of the past 7 months, from $3.19 (’08 EPS) at the peak down to $3.00 currently. The stock has struggled to find valuation support more recently as investors lost confidence in earnings trajectory. 2Q results and commentary could partially stem this, as the once-feared reset may already be embedded in current estimates for 2008. *What about 2009? The risk will shift to 2009, as consensus estimates imply 12% earnings growth, which looks increasingly unlikely. *Still Buy-rated, but beware the ’09 estimate reset. We recently removed AT&T from our near-term Conviction Buy List as the estimate instability creates a tough backdrop. However, our core longer-term Buy rating remains with an 18-month (from 12-month), 2009YE $44 price target. Our Buy rating rests on the strength of the wireless platform, with a handset lineup that creates a sustainable advantage in data revenue growth. Additionally, cost-cutting capabilities and substantial share buybacks give AT&T additional built-in protection against a weaker macro. VALUATION: Our 18-month PT of $44 is up from $42 previously, most due to rolling forward a year, and is a triangulation of: (1) sum of-the-parts (5.0X ’09 EV/EBITDA for wireline, 7.0X for wireless, 5.0X for directory); (2) DCF (7.7% WACC, 2.0% perpetuity growth); and (3) historical relative P/E framework. KEY RISKS: (1) Economic risks spread to wireless. (2) IPTV technology platform risks.