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The telecommunications company reported first-quarter earnings on Tuesday of $3.58 billion, or 60 cents a share, up from year-earlier earnings of $3.41 billion, or 57 cents.
"We view handset upgrade discipline as the most important factor for investor sentiment in wireless," Goldman Sachs analysts wrote in a report Tuesday. "AT&T's 1Q results were supportive, with handset upgrades at only 7%, and margins exceeded expectations as a result. Handset upgrades historically had a more positive connotation for AT&T, as smartphone penetration was low and upgrades carried a high probability of incremental ARPU. At this point, with smartphone penetration at 60%, we believe the company should be focused on lowering the upgrade rate. We believe 2Q and 3Q are each set for lower than average upgrade rates (7.6%/6.8% versus 8.7% average over the last 3 years), hence creating a more supportive margin backdrop for AT&T and likely the industry over that timeframe, with the iPhone 5 launch in early 4Q likely the next risk factor for sentiment."
Shares of AT&T hit a 52-week high Thursday of $32.39. The stock's 52-week low of $27.29 was set on Sept. 12.
AT&T trades at an estimated price-to-earnings ratio for next year of 12.61 times; the average for fixed-line telecommunications companies is 24.35. For comparison,
Verizon(VZ) has a higher forward P/E of 14.34.
Twenty-two of the 39 analysts who cover AT&T rated it hold. Fifteen analysts gave the stock a buy rating and two rated it sell.
TheStreet Ratings gives AT&T a B grade with a buy rating and
$35.50 price target. The stock has risen 6.81% year to date.