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A formerly vocal bear on AT&T Inc.’s stock has abandoned that stance, but not with much enthusiasm.
“We’re not optimists,” SVB MoffettNathanson analysts led by Craig Moffett wrote in a note to clients. “We don’t see things in Wireless generally, or at AT&T specifically, getting materially better. We do, however, believe that AT&T’s stock price now appropriately reflects reality.”
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Moffett and his team moved to a market-perform rating from a prior underperform stance, and they now have the same rating on AT&T
T,
that they do on shares of Verizon Communications Inc.
VZ,
and T-Mobile US Inc.
TMUS,
indicative of their wariness when looking at the broad wireless landscape.
The analysts noted that while telecommunications stocks, notably T-Mobile, outperformed last year, they’ve all lagged the S&P 500
SPX,
so far this year, signaling that “whatever optimism there was for telecom in 2022 has faded.”
Moffett saw risk in the wireless sector, writing of insurgent competition from cable providers that is pressuring average revenue per user for incumbent players, as well as a slowdown in industry growth. Those factors have kept him from upgrading shares of T-Mobile, despite his view that the stock is “getting objectively cheap” and that the company’s free-cash-flow story was attractive.
But Moffett also thought wireless stocks took an unfair beating last week amid reports that Amazon.com Inc.
AMZN,
might enter the wireless business.
“To be sure, Amazon quite obviously could do this if they wanted to,” he wrote in a note to clients last week, though he questioned why Amazon would want to, and whether telecommunications companies would play along.
While he wrote in Tuesday’s note that his AT&T upgrade didn’t reflect “a materially brightening picture,” he also acknowledged that at least one factor is improving.
“There appears to have been some easing of competitive intensity among the operators recently,” Moffett wrote, with Verizon and T-Mobile recently dropping device promotions on entry-level plans.
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Promotional cutbacks bring financial benefits and “also tend to signal that the carriers involved feel sufficiently comfortable with their subscriber trajectories that they can pull back on discounting,” he wrote.
“While AT&T’s persistence in offering aggressive discounts at the low-end (for both switchers and upgraders) doesn’t imply the same confidence, it should be noted that AT&T has now maintained its consistently aggressive stance for three full years now,” he continued. “And any reduction in competitive intensity, and indeed any signal that industry subscriber growth remains sufficient to support expectations, should be viewed as a positive for all players.”
