After Earnings, AT&T Remains A Favorite At Jefferies

Jefferies retained its Buy rating on AT&T Inc. T shares after the carrier reported an in-line earnings for its latest quarter as it added more smartphone customers even as the wireless market is saturating.

Analyst Mike McCormack noted that the fourth-quarter results of AT&T benefited from lower D&A that in turn helped promotions in both Mexico and the United States and absorbed higher DTV Now costs.

Justification

“We continue to favor T and see opportunity with improving handset and ARPU trends as well as scale in Mexico,” McCormack wrote in a note.

Further, the analyst sees improvement in wireless trends given lower ARPU declines and migrations to MSV plans should largely be done by mid-year, potentially offsetting the impact of unlimited video bundling.

That said, the analyst expects investors to question the quality of the EPS guide of the mid-single-digit growth outlook given what appears to be a sizable D&A benefit in 2017.

“We believe the D&A benefit could exceed $1 billion, though changes in capitalized interest (AWS-3 deployment), a normalized GAAP tax rate, and higher medical benefit expense serve as offsets,” McCormack added.

McCormack has a price target of $48 on AT&T shares, which, at last check, were down 0.65 percent to $41.12.