The Zacks Analyst Blog Highlights: AT&T, Apple, Google, Verizon Communications and Sprint Nextel

News provided by

Apr 23, 2012, 09:30 ET

CHICAGO, April 23, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include AT&T Inc. (NYSE: T), Apple Inc. (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG), Verizon Communications Inc. (NYSE: VZ) and Sprint Nextel Corp. (NYSE: S).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Friday's Analyst Blog:

Earnings Preview: AT&T

The second-largest U.S. mobile service provider AT&T Inc. (NYSE: T) is slated to release its first quarter 2012 earnings on April 24, before the opening bell. The current Zacks Consensus Estimate for the first quarter is 57 cents, representing a year-over-year increase of 0.37%.

Looking at surprises, AT&T had average negative surprise of 0.32% in the trailing four quarters. In the year-earlier quarter, the company did not surprise us by reporting in line earnings with our expectation.

At the fourth quarter 2011 conference call, AT&T provided guidance for fiscal 2012. The company projected consolidated revenue, including post-paid ARPU, to grow 2% year over year. AT&T also guided consolidated margin to expand further on increasing wireless margins and stable wireline margin. Accordingly, earnings per share would increase in the mid single-digit range, leading to further earnings acceleration in the years ahead.

Further, AT&T expected capital spending to be flat year over year at $20 billion and free cash flow in the range of $15–$16 billion. Moreover, the company intends to start the share buyback plan shortly as 300 million share repurchases are remaining under its share repurchase authorization.

Fourth Quarter Flashback

Lofty subsidies associated with Apple Inc.'s (Nasdaq: AAPL) iPhone negatively impacted fourth quarter earnings, which lagged the Zacks Consensus Estimate and remained below the year-ago level. However, revenue managed to grow year over year, outpacing the Zacks Consensus Estimate on healthy mobile broadband sales, strong wireless network performance and improved wireline revenue trends.

Wireless revenue advanced on the back of strong data revenues and subscriber growth. Rapid adoption of smartphones including iPhone 4S, healthy prepaid and reseller subscriber count along with growth in tablets and connected devices such as automobile monitoring systems and security systems led to the growth in retail wireless subscribers. Quarterly post-paid additions were the highest in five years.

Despite the solid momentum for AT&T U-verse and strategic services, Wireline revenue dipped on weakness in voice and legacy data products.

Fiscal 2011 Flashback

AT&T exited the year with increasing top line but decreasing bottom line. Wireless business remained healthy while the Wireline business was a turnaround story. The company continues to enjoy its leadership in WiFi and boasts of the best Internet speeds in the industry. AT&T is the only US carrier that provides 4G network through both Long Term Evolution (LTE) and High-Speed Packet Access Plus (HSPA+) technologies.

The company enhanced its balance sheet by reducing debt. AT&T reduced its net debt by $3.2 million during 2011. This shows the company's ability to expand its business further.

Agreement of Analysts

Estimates reflect a negative bias for both the first quarter and fiscal 2012 over the last 30 days. For the first quarter, 6 analysts out of 24 made downward revisions while 3 moved in the opposite direction. For fiscal 2012, out of the 31 covering analysts, 6 revised their estimates downward while 3 revised it positively.

The analysts made downward revisions primarily based on iPhone subsidies, which will likely limit AT&T's margins and profits throughout the year. Additionally, the company is facing hurdles in managing the rising mobile data traffic resulting from the most popular iPhone and Google Inc.'s (Nasdaq: GOOG) Andriod smartphones amid stiff competition and limited wireless spectrum licenses.

With the unsuccessful ending to the T-Mobile merger story last year, the company is in need of additional airwaves to expand its high-speed services. Already criticized for dropped calls and poor network coverage, AT&T will face more constraints in its capacity deployment compared to its largest rival, Verizon Communications Inc. (NYSE: VZ), which will in turn hurt subscriber growth.

Further, AT&T is competing fiercely with the aggressive pricing plans of Verizon and Sprint Nextel Corp. (NYSE: S). Moreover, smaller wireless carriers are also offering cost effective unlimited voice and data plans. This may negatively influence AT&T's high-end handset sales and challenge subscriber retention.

Moreover, AT&T is facing a potential strike threat in its wireline division in the East, Midwest, West and legacy should it fail to negotiate the new labor contract with them; the strike has not yet been called.

The analysts believe these negatives offset AT&T's strong subscriber count and average revenue per user, which is driven by increased penetration of smartphones and iPhones, in the U.S. market in particular.

Magnitude — Consensus Estimate Trend

The magnitude of revisions for the first quarter remained stable over the last 7 days at 57 cents, but decreased from 58 cents over the last 30 days.

Similarly, the Zacks Consensus Estimate for 2012 is $2.33, unchanged over the last 7 days but down by a penny over the last 30 days.

Neutral Recommendation

We expect this year to be a strong with continued growth in revenue, earnings per share and free cash flow as well as margin expansion. Strong adoption of iPhones and Android smartphone sales coupled with the LTE networks, expanding U-verse services, entrance into cloud computing and hotel WiFi businesses are expected to boost the company's future profitability.

However, persistent declines in traditional voice access lines, aggressive pricing plans by rivals, iPhone subsidies and intense competition from cable companies and other alternative services providers are risks to the stock.

We are currently maintaining our long-term Neutral recommendation on AT&T. The stock retains a Zacks #3 (Hold) Rank for the short term (1-3 months).

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
[email protected]
http://www.zacks.com

SOURCE Zacks Investment Research, Inc.