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Dow-30 component AT&T (T Free AT&T Stock Report), the nation's largest telecommunications outfit, has reported better-than-expected second-quarter results. Indeed, share net of $0.66 for the period topped our $0.62 estimate and Wall Street's consensus view of $0.63, as wireless margins showed surprising strength, U-verse video services gained traction, enterprise revenues rebounded, and the company remained active on the stock-buyback front. (Nearly 76 million shares were repurchased during the June interim for $2.5 billion.)

The wireless business, AT&T's primary growth engine in recent years, was the standout performer in the quarter. A total of 320,000 contract customers were added, far more than we had anticipated. Moreover, churn, or the customer cancellation rate, came in at less than 1%. And a lower upgrade rate meant that fewer costly smartphone/tablet subsidies had to be doled out. This contributed to a big jump in wireless margins during the period.

Looking ahead, we expect this positive momentum to persist through the remainder of the year, though wireless margins are apt to pull back a bit when Apple (AAPL) launches its next iPhone (likely in late September). AT&T should benefit as more of its traditional mobile phone customers switch to smartphones and tablet PCs (and dramatically increase their data usage), and as more devices are hooked up to the company's national wireless network. Additionally, we see U-verse making further inroads in the coming quarters, as AT&T endeavors to lure cable TV customers to its new video service with the help of attractively priced product bundles.

Despite the strong second-quarter showing, we are leaving our 2012 and 2013 share-earnings estimates intact at $2.40 and $2.55, respectively, at least until we have a better sense as to where margins in the key wireless division will settle. That said, we continue to like this high-quality Dow component as a defensive play for income-oriented accounts. It has truly been a safe haven for investors since the start of the year, easily outpacing the benchmark Standard & Poor's 500 Index, although the issue did pull back after the report’s issuance.

About The Company: AT&T, formerly SBC Communications, is one of the world’s largest telecom holding companies and is the largest in the United States. Its traditional (SBC only) wireline subsidiaries provide services in 13 states, including California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada. The company also owns Cingular (now AT&T Wireless). It has made a number of acquisitions, including PacTel (April 1997), SNET (October 1998), Ameritech (October 1999), AT&T (November 2005), and BellSouth (December 2006). It operates a total number of consumer revenue connections of 45 million. In 2011, about 52% of its sales came from wireless, 23% from wireline voice operations, 22% were from the data segment, and the remainder from advertising.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.