S&P likes the telecom giant's rising market share in broadband and wireless, and rates the shares strong buyAT&T Inc. (T; recent price, $38) will be hosting an analyst day in New York on Dec. 11, and we expect a positive message will be shared, including higher operating margin targets for 2008. With more than 30% of its revenues derived from wireless services and, in our view, opportunities to gain market share in broadband, we contend that AT&T is well-positioned to generate revenue growth in 2008 despite an economic slowdown. We also contend that as competitors face operational challenges, AT&T will gain market share in wireless and broadband.
In addition, we see opportunities for AT&T to expand its margins from additional cost synergies, including a migration of wireline data traffic to one network, and from improved efficiencies in the wireless segment. We expect AT&T will use its strong cash-flow generation to support a 10% dividend increase in December, 2007, and to fund growth opportunities with capital investment.
Despite expected increased competition in 2008, we view these high-quality shares as undervalued. The stock carries Standard & Poor's highest investment recommendation of 5 STARS, or strong buy.
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