AT&T Investors Prepare For Time Warner Deal To Get Put Through The Regulatory Wringer

While AT&T Inc’s (NYSE: T) acquisition of Time Warner Inc (NYSE: TWX) represents “a bold move into the media arena,” the synergies are likely to take time to play out, Barclays’ Amir Rozwadowski said in a report. He downgraded the rating on AT&T from Overweight to Equal-Weight, while reducing the price target from $45 to $39.

Analyst Rozwadowski expects AT&T’s shares to remain range bound “for the foreseeable future.”

Increasing Competition

The company’s Q3 results reflected increased competition. Lower net adds in both wireless and video as well as higher mobile churn were offset by broadly in-line margins and better FCF, Rozwadowski mentioned.

Management guided to mid-single-digit EPS growth. The analyst added, however, that video margin compression offsets potential upside.

Vertical Vision To Take Time

AT&T’s $85billion acquisition of Time Warner “is clearly a bold move into the media arena underscoring our view that vertical deals are likely the next play for access providers,” the analyst commented. He noted, however, that while earnings and FCF accretion would yield higher dividend, “proof points of its revenue synergy focused strategy will take time to materialize.”

“An extensive regulatory review process and AT&T’s own collar on the shares suggests range-bound performance for the foreseeable future,” Rozwadowski wrote.

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