AT&T's Acquisition Of Time Warner 'Compelling,' But Will Take Time To Show Results

AT&T Inc. T's acquisition of Time Warner Inc TWX is "compelling," but unlikely to show any positive financial impact on financial metrics until 2020 at the earliest, according to JPMorgan.

The Analyst

JPMorgan's Philip Cusick resumed coverage of AT&T with a Neutral rating and $36 price target.

The Thesis

AT&T's acquisition of Time Warner will likely close as the judge's ruling made it "very clear" regulatory authorities don't have a strong enough case to block the deal, Cusick said in a note. As such, the company will likely proceed with its plan of leveraging Time Warner's content into wireless and video and create targeted advertising.

Since AT&T needs to "build the engines" of its new video strategy, investors should expect weakness in the entertainment business to persist through 2018 but should show signs of improvement in 2019, the analyst said. Nevertheless, negative revenue growth of 7 percent in 2018 is expected and negative 4 percent in 2019.

AT&T's core mobility business could continue seeing pressure if competition ramps up and the company is forced to bundle wireless with video and broadband which would impact wireless results, the analyst wrote.

Bottom line, AT&T's stock could rebound in the near-term after a "period of deal-related flow back," but there are better picks in the large-cap telecom space for investors.

Price Action

Shares of AT&T were trading higher by 0.7 percent Tuesday morning at $32.41.

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