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AT&T Maintained at Neutral

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On Jul 29, we maintained our Neutral recommendation on AT&T Inc. (T - Free Report) . The company displays strength in both wireless and wireline segments along with efficiency in operations and execution of various strategic actions. However, the company’s performance in the near term might be impacted by certain headwinds. This Dallas-based leading telecom firm carries a Zacks Rank #3 (Hold).  

Why Maintained?

We believe that AT&T is well poised for growth with prospects ranging from robust subscriber additions, higher smartphones sales, expanding LTE coverage, growing demand for mobile Internet to faster fiber deployment and U-verse gain. The company stands as a leader in WiFi (wireless broadband) connectivity with over 30,000 domestic and 190,000 international hotspots.

Lucrative acquisitions and agreements will contribute largely to AT&T’s growth story. The company proposed to take over the largest prepaid wireless operator in the U.S. – Leap Wireless International Inc. – for $1.2 billion.

This deal will endow AT&T with a stronger pre-paid business line, competitive advantage, more customer care service facilities, low-cost data plans and robust financial resources. We also believe the agreement with IBM will enable the company to scale up its business in the wireless segment and enhance service offerings that garner significant market traction.

We have a positive outlook for the strategic initiatives that AT&T has adopted for better performance and expansion. The company plans to woo customers with early upgrades to smartphones and tablets every year. The carrier’s new device upgrade service called AT&T Next that will allow subscribers (both new and existing customers) to change their old smartphones or tablets every year without any upgrade fee or down payment.

However, we stay on the sidelines taking into account the various roadblocks that AT&T faces. These are primarily a competitive telecom environment, constant changes in technology, failure to succeed in spectrum auctions and a hefty iPhone subsidy.  

For the third and fourth quarters of 2013, the respective Zacks Consensus Estimate for earnings is 68 cents and 49 cents per share. This reflects year-over-year growth of 9.0% and 11.1% in 2013 and 2014, respectively.

Other Stocks

Companies operating within the telecommunication sector that are worth taking note of include Nippon Telegraph and Telephone Corp. and Hawaiian Telcom Holdco Inc. . Both the stocks hold Zacks Rank #1 (Strong Buy).

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