AT&T downgraded by JP Morgan following decision to abandon T-Mobile deal

AT&T downgraded by JP Morgan following decision to abandon T-Mobile deal
JP Morgan analyst Philip Cusick was forced to suspend his coverage of AT&T while JP Morgan advised AT&T on the latter's bid for T-Mobile. Now that AT&T has pulled out of the deal, Cusick was allowed to resume disseminating his opinion on AT&T's common stock. The analyst did so this morning, telling clients that he was putting a "Neutral" rating on the equity of the telecommunications giant. This is a downgrade from the Overweight rating that Cusick had on AT&T prior to the suspension of his coverage. At the same time, the analyst lowered his target on the stock to $31 from $33. As of Tuesday afternoon, AT&T was up 1.4% on the day to $29.13.

Cusick told clients that the mobile carrier industry still needs to consolidate or else "companies like Sprint, Leap and MetroPCS could struggle." He added that a "re-invigorated T-Mobile USA could be a consolidator over time or a driver of price competition and eroding cash flow."  He also sees AT&T buying back $4 billion of its shares to keep the company's debt/equity ratio constant next year. The analyst told clients that he sees AT&T's profit margins under pressure from smartphones, specifically the Apple iPhone. High subsidies for new phones are cutting into AT&T's profit margins"

Other forecasts made by Cusick include AT&T purchasing more spectrum in the near-term from MetroPCS and Leap Wireless, and in the long term from Dish Networks and Clearwire. The carrier is seeking government approval to close a previous deal to buy spectrum from Qualcomm and last night urged the government to allow the deal to be completed. T-Mobile, according to the analyst, is having problems without having the Apple iPhone in its lineup. Besides a possible partnership with Dish Networks, which we previously reported on, adding 4G service from LightSquared or Clearwire is a possibility. He sees the nation's fourth largest carrier getting aggressive in both pre-paid and post-paid offerings.

source: Forbes

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