MoffettNathanson analysts gave AT&T a bump this week from Sell to Neutral, but were quick to note the boost was based on a short-term outlook rather than confidence in long-term trends.
In a Tuesday note, the firm also upgraded the broader wireless market from Underweight to Neutral, despite a first quarter it dubbed “one of the worst in recent memory” for the industry. According to MoffettNathanson, the reason behind the boost was not a particular confidence that things will get better, but rather the belief that they won’t get much worse than they currently are – at least in the short term. The firm said it anticipates no risk to AT&T or Verizon’s dividends, and expects operating results to at least stabilize over the next year.
“We admittedly see no obvious imminent positive catalysts, either for AT&T or the sector, but neither do we see any imminent negative catalysts that would warrant a further downward revaluation,” MoffettNathanson analysts wrote. “We remain relative bearish about long-term trends.”
MoffettNathanson’s doubts stem from ARPUs that when adjusted for accounting are dropping across the board, declining wireless service revenue at both Verizon and AT&T, and slowing subscriber growth. In the first quarter, phone-only postpaid ARPU at AT&T dropped 2.4 percent year over year to $58.09. Postpaid ARPA (average revenue per account) at Verizon was also down 5.8 percent to $136.98. Both carriers saw consolidated organic revenue growth declines in the first quarter, and Verizon and AT&T exited the first quarter with postpaid phone net losses of 289,000 and 398,000, respectively.
But there are a few potential upsides on the way for the industry.
Both MoffettNathanson and BTIG’s Walter Piecyk said Tuesday a Sprint-T-Mobile merger could serve as a positive if the combined company moderates the extreme competitive positions of the individuals. Even a Sprint left solo could prove to be an upshot in that its financial position would force the carrier to raise prices, MoffettNathanson noted.
While MoffettNathanson maintained Verizon at a Buy rating, BTIG held its own line at Neutral, citing the possibility that a T-Mobile-Sprint deal won’t happen and the potential entrance of yet another new player into the wireless space.
