I had a very unusual week last week. I was marketing in Europe and spent a good part of every meeting talking about AT&T (thanks Elliott). I haven’t seen this much interest in AT&T since the 2007 - 2010 period, when they were the only US Carrier able to sell the iPhone.
We considered upgrading AT&T around 2Q19 results. Our interest was piqued by data that may have signaled an inflection point in churn. It seems that the new spectrum AT&T is deploying is driving a marked improvement in network performance. If this drives improved churn, as we think it should, then AT&T should see subscriber growth accelerate, or margins improve, or both. Investors aren’t expecting a recovery at AT&T Wireless (thus the opportunity). We covered this thesis in our recent Wireless Trends report HERE.
We didn’t upgrade the stock because the other businesses are struggling, and expectations for these businesses appear optimistic. DTV subscriber declines have accelerated to a startling 12% and will probably get worse from here. The prospect of stable EBITDA in the entertainment segment next year seems slim. Warner Media has been fine, but the warning signs are there too, with a steady trickle of talent leaving amid stories of frustration with AT&T management.
Elliott is striking at an interesting time. We think there are some opportunities to unlock value at AT&T, though they aren’t easy, and convincing AT&T to change course will take some work. We covered our thoughts on Elliott’s plan and on where we see opportunities in a recent comment HERE. We still aren’t ready to upgrade the stock, but we can see what Elliott is playing for.
Full 12-month historical recommendation changes are available on request
Reports produced by New Street Research LLP, 18th Floor, 100 Bishopsgate, London, EC2N 4AG. Tel: +44 20 7375 9111.
New Street Research LLP is authorised and regulated in the UK by the Financial Conduct Authority and is registered in the United States with the Securities and Exchange Commission as a foreign investment adviser.
Regulatory Disclosures: This research is directed only at persons classified as Professional Clients under the rules of the Financial Conduct Authority (‘FCA’), and must not be re-distributed to Retail Clients as defined in the rules of the FCA.
This research is for our clients only. It is based on current public information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Most of our reports are published at irregular intervals as appropriate in the analyst's judgment. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.
All our research reports are disseminated and available to all clients simultaneously through electronic publication to our website.
New Street Research LLC is neither a registered investment advisor nor a broker/dealer. Subscribers and/or readers are advised that the information contained in this report is not to be construed or relied upon as investment, tax planning, accounting and/or legal advice, nor is it to be construed in any way as a recommendation to buy or sell any security or any other form of investment. All opinions, analyses and information contained herein is based upon sources believed to be reliable and is written in good faith, but no representation or warranty of any kind, express or implied, is made herein concerning any investment, tax, accounting and/or legal matter or the accuracy, completeness, correctness, timeliness and/or appropriateness of any of the information contained herein. Subscribers and/or readers are further advised that the Company does not necessarily update the information and/or opinions set forth in this and/or any subsequent version of this report. Readers are urged to consult with their own independent professional advisors with respect to any matter herein. All information contained herein and/or this website should be independently verified.
All research is issued under the regulatory oversight of New Street Research LLP.
Copyright © New Street Research LLP
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of New Street Research LLP.