AT&T Inc.T

Morningstar Rating

Stock Research and Analysis

by Michael Hodel, CFA

We don't expect the weakening economy will have a huge impact on AT&T, but the firm will still likely see revenue pressure as customers cut back spending, especially on older, highly profitable services, like long-distance voice. AT&T has been steadily preparing for the migration away from these services--especially reflected in its emphasis on wireless--but these shifts are likely to happen faster than expected a year ago. Read more

Bulls Say

AT&T has direct access to and established relationships with millions of residential and business customers. The firm's network upgrade plans should enable it to offer these customers more and better services, driving revenue growth without consuming loads of capital.

The customer base for AT&T's high-speed Internet service is the largest of any provider in the U.S., and more than a third of the firm's residential phone customers subscribe to the service. These customers are more likely to remain loyal than those who don't subscribe.

AT&T Mobility and Verizon Wireless stand head and shoulders above the rest of U.S. wireless industry. Unlike Verizon, AT&T owns all of its wireless subsidiary. AT&T also boasts the deepest-spectrum portfolio of any carrier in the nation's largest markets. Wireless should generate strong profits and differentiate the firm from the cable companies as consumers migrate to wireless services.

The firm's directory publishing business is among the most profitable in the industry, generating extremely strong cash flow. While this business is struggling in the current economy, it could provide the platform to build a strong advertising business on top of AT&T's wireless and television operations. Read more

Bears Say

The bulk of revenue and cash flow still comes from fixed-line local and long-distance phone services, but these business are under increasing attack from competitors and technological substitution.

AT&T's local network upgrade may leave the firm with too little capacity, especially as it pushes into the video business.

Although AT&T has a manageable debt load, add in other liabilities--unfunded postretirement-benefit obligations and deferred tax liabilities--and its financial position, especially if business begins to deteriorate, doesn't look as strong. Read more

Strategy

AT&T hopes to use its wide array of networks, especially its wireless capabilities, to differentiate its services. To attract consumers and combat cable competition, the firm is upgrading local phone networks, rolling out video services, and beginning to integrate fixed-line and wireless calling features. Read more

Management

Edward Whitacre, chairman and CEO since 1990 and the architect of the firm's transformation into a global behemoth, retired in June 2007. His replacement, Randall Stephenson, has been with the company since 1982, serving most recently as COO. He was CFO from 2001 to 2004. Read more

Profile

AT&T is the dominant local phone company in 22 states, serving about 55 million local phone lines and 15 million high-speed Internet users. The firm also provides phone and data services, such as Web hosting and data transport, to businesses nationwide, notably large corporations. Read more

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