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Morgan Stanley Sees No Turning Back From Installment Plans For AT&T

Dwight Einhorn

In a report published Wednesday, Morgan Stanley analyst Simon Flannery reiterated an Equal-Weight rating on AT&T (NYSE: T).

In the report, Morgan Stanley noted, “If there was any doubt about the pace of installment plan adoption, today's guidance update clearly showed that AT&T is moving full steam ahead.

"Some 50% of smartphone sales are expected to be on Next (installment) in 2Q, up from 40%+ in 1Q, while Mobile Share Value plan adoption is expected to reach two thirds of the base by year-end vs. 44% at the end of 1Q. This drives incremental equipment revenues (much of which is non-cash initially) lifting 2014 revenue guidance from 4% to 5%, but below the line metrics are unchanged. Net adds of 800k+ for 2Q14 are ahead of our 489k estimate driven by low churn.

"We are encouraged to see $21bn capex guidance for 2014 reiterated implying a significant deceleration from the $23bn spent in the last 12 months. The new guidance implies significant hits to wireless service revenues, ARPU, service margins and EBITDA despite lower equipment subsidies and Leap consolidation.”

AT&T closed on Tuesday at $35.20.

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