Sep 24, 2020
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Making Money With Ma Bell

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AT&T s most recent earnings beat the consensus estimates for the 10th straight quarter leaving many to wonder whether this should still be considered a surprise. Shares of AT&T have soared nearly 50% during the last year comparing to a much more modest gain in Verizon no gain in T-Mobile s parent Deutsche Telekomand a decline in shares of Sprint

 

Stocks recommended in Forbes Special Situation Survey are up 26. 5% ago year vs. 10. 4% for the general market. Click here for this month s materials buy. Is it too late to get at the AT&T juggernaut? Not in line with the quantitative model we employ for the Forbes Growth Investor newsletter

 

With full ownership of AT&T Wireless (formerly Cingular Wireless) an exclusive deal to sell the imminent iPhone from Apple and a growing integrated high-speed voice data and video offering called AT&T U-verse we believe there is still much more upside in shares of T. Special Offer: Forbes Growth Investor subscribers are up 60% on Harris and they ve doubled their money in MetLife

 

Click here for this month s new buys in basic materials technology and health care. As measured by revenue AT&T is the area s largest telecommunications company. It provides both wireline and wireless phone and information communications services. The wireline segment (60% of first-quarter revenues) provides voice data and other services

 

Voice includes local long-distance international long-distance calling card 1-800 conference calling and assorted business applications. T also provides wire and gear maintenance. Data includes Internet access and network integration. Other includes managed Hosting application management security outsourcing directory and operator assistance government-related services and video. The wireless segment (33% of first-quarter revenues) carries pre- and post-paid calling plans

 

Most post-paid plans require long-term contracts with monthly billing. T also charges fees to other carriers when their customers roam onto its network. This segment also includes sales of handsets wireless data cards carrying cases hands-free sets batteries battery chargers and other third-party items. The advertising and publishing segment (5% of Q1 revenues) produces the Yellow and White Pages directories

 

Last December s BellSouth acquisition also gave AT&T full control of YellowPages. com. AT&T realized cost savings of $300 million in the first quarter from the BellSouth acquisition. The November 2005 acquisition of the original New Jersey-based AT&T by the acquisitive San Antonio Texas-based SBC Communications continues to pay off; it produced one more $600 million in cost savings just this past quarter

 

Better than expected synergies have led management to extend the 2007 operating profit margin target range to 23% to 24% from their prior forecast of 21% to 23%. The wireless segment added 1. 2 million net new subscribers in the first quarter bringing the full to 62. 2 million. Average monthly revenue per user increased 1

 

4% year-over-year to $49. 21 per month. Total churn improved to 1. 7% down from 1. 9% in the prior year period and 1. 8% in the fourth quarter. Churn for post-paid customers hit a record low of 1. 3%. These improvements helped the wireless segment expand its operating profit margin to 38

 

9%. Special Offer: Motorola has stumbled badly in recent quarters. But as MOT loses market share which companies are best poised to gain share? And how about suppliers. who are the winners and losers? Click here for buy and sell recommendations in Forbes Wireless Stock Watch. Deterioration in wireline revenue is slowing owing to strong growth in the regional business improvements in enterprise and accelerating net additions in broadband and video

 

The company garnered 691 000 net new broadband customers in the first quarter bringing the full to 12. 9 million. It also added 187 000 video connection customers bringing that total to 1. 7 million. First-quarter net revenue jumped 83. 9% year-over-year to $29 billion largely by means of the addition of BellSouth but pro forma revenue grew just 1

 

7%. Pro forma wireline sales declined 3. 2% by means of competition and pricing pressures. Pro forma Wireless sales increased 11. 2%. Pro forma net income jumped to $4. 1 billion or 65 cents per share vs. $2. 0 billion or 52 cents per share in the prior year period. GAAP net income was $2

 

8 billion or 45 cents per share compared with $1. 4 billion or 37 cents per share in the prior year period. Investment risks include competition from substitute technologies offered by Internet phone companies and cable television operators. And as the market becomes saturated it becomes increasingly difficult to add new subscribers and decrease churn without sacrificing margins

 

Yet new services that integrate Internet protocol television high-speed broadband and VoIP should offset these concerns. And an exclusive deal to sell Apple s iPhone is a giant win. Samuel Ro is associate equity analyst at Forbes Investors Advisory Institute publisher of the Forbes Growth Investor and Forbes Special Situation Survey investment newsletters

 

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