Friday, Credit Suisse initiated coverage of AT&T, Inc. (T) stock with a Neutral rating and a price target of $27.
Analyst Chaplin does not see a strong case for AT&T beating expectations until mid 2010 at the earliest. In the meantime, pricing fears will likely weigh on the group as a whole and AT&T in particular. The analyst believes long-term expectations for wireless EBITDA margins will come down, driven by: ARPU decline of $3, lower-than-expected scale benefits, rising churn, and rising CPGA.
Conversely, the analyst expects a return to growth in wireline in 2011, coupled with wireline margin expansion, which is also not reflected in consensus expectations. The analyst's wireless ARPU and margin analysis is based on top-down industry models, his proprietary consumer wireless survey, an ARPU segmentation analysis, and analysis of wireless operating leverage.
Near-term catalysts that the analyst believes will support thesis include more aggressive pricing announcements in wireless and signs that the enterprise market is stabilizing.
Catalysts that would make the analyst more positive are an earlier recovery in enterprise, greater-than-expected cost reductions in wireline and wireless, and a turn in the economy or in expectations for the market. Negative potential catalysts include: the announcement of a CDMA iPhone in 2010 and a failure to address network issues quickly enough.
Currently, T is down $0.52 or 2.01% and trading at $25.58.
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