KeyBanc Turns Bearish On AT&T, Says Consumers Facing Macro Pressure

KeyBanc Capital Markets data indicates a month-on-month decline in AT&T Inc’s T wireless postpaid average revenue per user, suggesting limited improvement in service revenue in the third quarter. 

The AT&T Analyst: Brandon Nispel downgraded AT&T from Sector Weight to Underweight with a $25 price target. 

The AT&T Thesis: The company is “secularly and competitively challenged,” while expectations seem high across most segments, Nispel said in a downgrade note.

The analyst named the following takeaways from KeyBanc’s proprietary Key First Look Data:

• Declining postpaid ARPUs on both a month-on-month and year-on-year basis. 
• A deceleration in DirecTV indexed customers from negative 16% year-on-year in July to negative 18% in August. 
• Rapid deceleration in DirecTV ARPUs to 0.5% year-on-year in August, from 3.8% in July and “mid to high single-digit growth previously.”
• Net additions at AT&T TV and AT&T TV Now of around 200,000 and 100,000 in the third quarter.
• Net additions at HBO Max of around 2 million in the third quarter.

"From our perspective, declining postpaid ARPUs suggest a trade-down of wireless plans, likely due to macro pressure on the consumer," Nispel said. 

"In addition, while we had expected DTV subscriber losses to improve, we now expect them to be worse in 3Q20 in addition to the moderating Linear Video ARPU growth. AT&T TV and AT&T TV Now are two products unlikely to make up for DTV losses. Lastly, 2M HBO customer additions in 3Q would be in line with our expectations."

T Price Action: Shares of AT&T were down 0.24% at $28.60 at the time of publication Monday.

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