Will AT&T (T) Stock be Hurt Today by Lower Estimates at Goldman Sachs?

NEW YORK (TheStreet) -- Shares of AT&T (T) are slightly up 0.09% to $32.14 in pre-market trading despite lowered EBITDA estimates issued today by Goldman Sachs analysts.

"We update forecasts to account for further evidence of increased wireless competition. The key financial impact is a reduction to our wireless EBITDA margin estimate to 38.2% (from 41.5% previously) for 4Q14 and to 44% (from 45.1% previously) for 2015," Goldman said.

"This is the primary reason we have also lowered our EPS estimates (4Q14, down 7 cents to 53 cents, 1Q15, down 2 cents to 65 cents)" analysts added.

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"We update forecasts to account for higher valuations in the AWS-3 auction. We now expect AT&T to spend $16.3 billion for a nationwide 20MHz license (H and I blocks) in 1Q15; this is up from our prior estimate of $8 billion," Goldman noted.

Specifically, analysts said fourth-quarter margin pressure is largely a function of increased volumes and promotional offers.

Separately, TheStreet Ratings team rates AT&T INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate AT&T INC (T) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • T's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 2.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.82, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.40 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, AT&T INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for AT&T INC is rather high; currently it is at 55.88%. Regardless of T's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.10% trails the industry average.
  • You can view the full analysis from the report here: T Ratings Report

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