Two Takeaways from AT&T’s Analyst Event

AT&T's T analyst event, which we attended Nov. 29, was designed to deliver two main points, in our view: reducing leverage over the next two years is the company's top priority, and the much-maligned consumer segment will achieve EBITDA stability in 2019. We view both messages as part of the effort to calm the growing negative market sentiment concerning AT&T's ability to fund the dividend and invest in the business, including potential spectrum purchases, while repaying debt fast enough to bring down leverage. Although we suspect AT&T will meet its 2019 leverage target given the extreme management focus on this effort, we remain negative on the prospects for the consumer segment. We believe this business is heavily exposed to the shifting trends in the television business, which are creating growth headwinds that make the focus on continued debt reduction necessary. We believe AT&T's current limited financial flexibility reflects management's poor capital-allocation decisions in recent years. We are maintaining our narrow moat rating and $37 fair value estimate, leaving the shares about 15% undervalued.

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