AT&T Inc. is scheduled to report their Q1 2010 results after the market closes on April 20, 2010. While AT&T's 4Q results were broadly in-line with expectations, management has a cautious, but constructive tone for 2010. With the 3.1M iPhone activations in 4Q, over 10M iPhones were activated in 2009. We believe these and other smart phones combined with solid churn numbers give AT&T a distinct advantage and will drive superior service revenue growth in 2010. AT&T is expected to maintain exclusivity at least through mid 2010. Furthermore, tight cost controls and a 2H10 recovery should allow AT&T to maintain 30%+ wireline margins. AT&T expects 2010 FCF in line with 2008 results ($13.3B), mainly as capex is expected to be in the $18B to $19B range.
AT&T Inc. is in the communications industry. Through its subsidiaries'' trusted brands and world-class network, AT&T Inc. and its affiliated companies provide voice, data, networking and e-business services, including local and long-distance voice, high-speed Internet access and data transport, voice and data network integration, software and process integration, Web site and application hosting, e-marketplace development, paging and messaging, as well as cable and satellite TV, and directory advertising and publishing.
In Q4 2009, iPhone helped its exclusive US carrier activate another 3.1 million accounts, the second highest quarterly to date, with more than a third of the activations for customers who were new to AT&T. Q4 2009 EPS came in $0.51, that includes $0.04 of pressure due to severance charges, offset by $0.04 of tax-related benefits. Consolidated revenues were stable at $30.9 billion, up slightly on a sequential basis for the third straight quarter with strength in wireless, AT&T U-verse, and strategic business services. ARPU was up this quarter again by 2.6%, marking an eighth consecutive quarter with year-over-year growth in postpaid ARPU. Furthermore, churn also was the best ever for Q4 2009, with total and postpaid churn both down year-over-year for the sixth consecutive quarter. Q4 wireless data revenues were up more than $800 million or over 26%, with full-year wireless data revenues increasing by $3.5 billion. Text messages were up 70%, multimedia messages more than doubled. The number of 3G-integrated devices on the network was up more than $4 million in line with the Q3 increase.
Analysts' estimates for Q4 2010 range from a low of $0.51 to a high of $0.59, compared to a consensus estimate of $0.54, with number of estimates being 29 and the co-efficient variance 3.59. AT&T announced that it would record a $1 billion non-cash charge for the current quarter related to the new U.S. health care reform law signed by President Barack Obama this week, which is likely to affect earnings to some extent. On the positive side, AT&T should be able to offer more Android OS based devices in the coming months as recent data shows Android OS market share is rapidly rising. However, Like Verizon, AT&T expects a slow economic recovery in 2010 and does not see unemployment turning until the back half of the year.
The stock closed at $25.70, up 0.19% on April 7, 2010. The Telecom sector can outperform the market in coming months in what will be a long and slow recovery process, making stocks like AT&T more interesting than those leveraged to a rapid bounce back. Longer-term, the company is best positioned amongst peers to reap the benefits of the two long-term growth engines in the industry: wireless data and enterprise. Most analysts' rate this stock as an Overweight with a price target of $30.
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