AT&T Downgraded By UBS On Competitive Pressure

Earnings growth at AT&T Inc. (NYSE: T) is likely to be lower than earlier expected, with intensifying competition in wireless, UBS’s John C. Hodulik said in a report. He downgraded the rating on the company from Buy to Neutral, while reducing the price target from $46 to $43.

The EPS estimates have been lowered by 3 percent to reflect increased competitive pressure in wireless and incremental costs associated with AT&T's DTV Now roll-out. The EPS estimates for 2016 and 2017 have been reduced from $2.93 to $2.84 and from $3.12 to $3.02, respectively, now reflecting 4.6 percent and 6.4 percent earnings growth, analyst Hodulik mentioned.

“We continue to believe AT&T is on track to exit 2016 with $1.5B in synergies and reach its $2.5B target next year,” Hodulik wrote.

Related Link: AT&T Management Talks iPhones And DirectTV

Increasing Wireless Competition

The analyst noted three factors responsible for the expected deceleration in wireless EBITDA growth:

1. Diminishing benefits from the shift to installment plans
2. Limited upside to savings from lower volumes
3. Ramping competitive intensity

“The recent ~$300 per iPhone promotions suggest this theory is starting to play out, resulting in lower wireless margins in 2H. While this promotion is about to end, we expect carriers to remain competitive in 4Q and with AT&T's new OTT product around the corner and new cable MVNO launches in mid-2017, competitive intensity is only picking up,” Hodulik commented.

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