AT&T Poised for Long-Term Growth, Competition Woes Rife
On May 18, we issued an updated research report on U.S. telecom behemoth AT&T, Inc. T.
AT&T reported strong financial results in the first quarter of 2016 with both the top and the bottom line beating the Zacks Consensus Estimate. However, the company’s U.S. postpaid wireless subscriber addition of 129,000 was down a significant 70.7% year over year.
Nonetheless, prospects of better earnings and revenues over the long haul from the DIRECTV purchase are bright. From 2016 to 2018, AT&T expects consolidated revenue growth to be in line with GDP growth or higher while adjusted earnings per share growth is projected in the mid-single digit range.
With its combination of U-Verse – DIRECTV’s satellite TV -- and an all-fiber GigaPower Internet service, AT&T now has the operational flexibility to provide traditional cable TV service as well as mobile video streaming service to users.
In March, the company announced plans to offer a version of its DIRECTV satellite TV service through the Internet which would not require customers to have a satellite dish, set-top box or annual contract. The company will be offering three affordable video plans in order to appeal to all types of viewers, ranging from those who want the full package to a streamlined bundle.
We believe that the new endeavor will help AT&T attract cord cutters and boost revenues. Also, offering of two-year guaranteed pricing for its new DIRECTV, home internet and digital phone customers is expected to aid in expansion of its satellite offering in the residential services segment.
AT&T has revealed plans to field test the next-gen 5G technology. If the company succeeds to bring 5G to the U.S. market before any of its peers, its quest to be the numero uno in the domestic market will definitely see a positive direction.
Further, the company stands to benefit hugely from initiatives in the Internet of Things (IoT) space and investments in the Mexican telecom market and fiber arena.
However, AT&T has increased the prices of its voice and U-verse video services because of rising operating costs, especially in programming and service delivery, as well as increasing content costs. This may impact subscriber retention in the near term.
Additionally, a saturated wireless market, spectrum crunch and regulatory risks remain potent headwinds. Moreover, intensifying competition in the U.S. wireless market from peers like Verizon Communications Inc. VZ, T-Mobile US, Inc. TMUS and Sprint Corp. S is another major concern.
AT&T currently has a Zacks Rank #3 (Hold).
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