AT&T leads wireless stocks lower after company ‘reinforced market fears’ about the cost of growth
AT&T Inc. shares are leading a wireless selloff Tuesday after the company gave a presentation at an investor conference that one analyst said “reinforced market fears” about what its customer-acquisition spending could mean for broader industry trends.
AT&T Communications Chief Executive Jeff McElfresh said at a Wells Fargo conference Tuesday that the company is “expecting to take more than our fair share,” and “more than our market share,” when it looks at the growth opportunities in the wireless business. He also commented that the company’s outlook “doesn’t count on the industry being outsized in terms of postpaid growth,” or growth in subscribers who pay for their phone plans at the end of each monthly cycle.
The commentary prompted a blunt analysis from Bernstein analyst Peter Supino: “AT&T
either doesn’t get that it cannot gain subscriber share sustainably while earning premium [average revenue per user] for average service, or it doesn’t care.”
Supino noted that AT&T is upbeat about the profitability of its strategy because the company’s low churn rates compensate for higher costs to retain subscribers, but he’s worried about the company’s costs to acquire new subscribers.
“AT&T’s appetite for high subscriber growth will degrade industry profitability over time as it collides with insurgents bidding for acquisitions and/or reducing rates,” he wrote in a note to clients. “Slowly, these decisions reshape industry returns on capital.”
Even so, Supino thinks that wireless stocks might be getting unfairly punished.
“The share-price action in wireless stocks seems awfully forward looking for such a cash-generative and conservative industry,” he wrote. “In a year in which leverage ratios have passed their 5G peaks and all majors beat financial and operating expectations and with industry churn at all-time lows, we think wireless cash flows will be strong and that wireless stocks are oversold.”
Shares of AT&T have declined 16.2% in the past three months, while Verizon shares have dropped 8.1% and T-Mobile shares have lost 21.0%. The S&P 500
is up 1.7% in a three-month span.