AT&T Likely to Sell its Digital Advertising Unit Xandr; Target Price $25 in Worst-Case

AT&T Inc, an American multinational conglomerate holding company, is in discussions to sell its digital advertising unit Xandr, the Wall Street Journal reported citing people familiar with the matter, sending its shares down over 1% on Tuesday.

“Discussions are at an early stage and may not ultimately result in a sale, which is unlikely to fetch more than the amount AT&T paid for AppNexus in 2018,” the WSJ reported.

AT&T’s consolidated revenues for the second quarter totalled $41.0 billion versus $45.0 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across all segments.

Xandr revenue climbed more than 15% last year to $2 billion.

“AT&T’s wireless growth opportunities remain impressive with the widespread launch of mobile 5G services in several cities. The inherent growth potential of the streaming services from HBO Max also bodes well,” noted analysts at Zacks Research.

“(But) AT&T continues to struggle in a competitive and saturated U.S. wireless industry, while margin pressures due to promotional offers and discounts are headwinds amid the coronavirus-induced turmoil.”

AT&T shares closed 1.14% lower at $29.47 on Friday, the stock is down about 25% so far this year.

AT&T stock forecast

Twelve analysts forecast the average price in 12 months at $34.00 with a high forecast of $38.00 and a low forecast of $25.00. The average price target represents a 15.37% increase from the last price of $29.47. From those 12 analysts, eight rated “Buy”, two rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $36 with a high of $49 under a bull-case scenario and $26 under the worst-case scenario. Scotiabank lowered their rating to sector underperform from sector perform; cuts target price to $30 from $34.

Other equity analysts also recently updated their stock outlook. AT&T had its price target boosted by Royal Bank of Canada to $25 from $24. They currently have an outperform rating on the technology company’s stock. Zacks Investment Research downgraded shares of AT&T from a hold rating to a sell rating and set a $33.00 price objective. Guggenheim lowered their price objective to $38 from $39 and set a buy rating.

Analyst view

“Valuations near multi-year lows already reflect company and industry concerns. Return to wireless service revenue growth with Firstnet and nationwide 5G rollout in 1H20. Potential industry consolidation provides upside opportunities. A dividend payout ratio in the 60s is sustainable in the medium term, buybacks possible as deleveraging continues,” said Simon Flannery, equity analyst at Morgan Stanley.

“Our valuation reflects 5.75% 2020E dividend yield, which is a +400bps spread above the MS Strategy 4Q20 US 10-year Treasury forecast, slightly wider than the historical 5-year average,” he added.

Upside and Downside risks

Upside: 1) Four to three wireless consolidation. 2) Return to wireless service revenue growth. 3) Improving Entertainment Group trends. 4) Activist Shareholder drives change – highlighted Morgan Stanley.

Downside: 1) Increased wireless competition ends return to service revenue growth. 2) Free cash flow pressured, increasing leverage and dividend sustainability concerns. 3) Recession could pressure business wireline, advertising revenues. 4) OTT dilution and execution risks.

T-Mobile US Q2 Revenue Jumps 61%, Overtakes AT&T as Second-Largest Carrier; Target Price $115

T-Mobile US Inc, an American wireless network operator, said its revenue jumped 61% to $17.67 billion in the second quarter, beating Wall Street estimates and added it has overtaken rival AT&T Inc as the second-largest wireless provider in the world’s biggest economy, sending its shares over 5% pre-market trading on Friday.

The telecommunications company headquartered in Washington said it add 1,245,000 new customers in the second quarter of this year, pushing its total customer count to 98.3 million, overtaking AT&T in total branded customers across both postpaid and prepaid.

T-Mobile’s Total revenues increased 61% to $17.7 billion in Q2 2020, driven by the Sprint merger and continued customer growth at T-Mobile. That was higher than strategists’ estimates of $17.61 billion, according to IBES data. The company said its net income declined to $110 million, or 9 cents per share, from $939 million, or $1.09 per share, a year earlier.

“We don’t expect to materially change our $89 fair value estimate and we view the shares as modestly overvalued,” said Michael Hodel, director at Morningstar.

On Thursday, T-Mobile US’ shares closed 0.19% higher at $108.10 but gained over 5% in pre-hours trading on the last trading day of the week.

Executive comment

“Surpassing AT&T to become #2 was a huge milestone to kick off Q2, but that was only the beginning! In our first quarter as a combined company, T-Mobile led the industry in total branded customer adds – even in a challenging environment – and there is no doubt that we are THE leading growth company in wireless,” Mike Sievert, T-Mobile CEO said in a press release.

“Now we’re setting our sights on #1 – in customer choice and customers’ hearts – and we’ll get there by doing ONLY what the Un-carrier can do: offering customers the most advanced 5G network AND the best value while continuing to make big moves that fix customer pain points and disrupt this industry. I’m excited about what’s to come in this new T-Mobile era – we’re just getting started!”

T-Mobile US stock forecast

Sixteen analysts forecast the average price in 12 months at $119.50 with a high forecast of $140.00 and a low forecast of $94.82. The average price target represents a 10.55% increase from the last price of $108.10. From those 16, 13 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $115 with a high of $146 under a bull scenario and $62 under the worst-case scenario. JPMorgan raised the target price to $140 from $110 and Deutsche bank kept target price unchanged at $140 target price, upped the rating to buy from hold.

Several other equity analysts have also updated their stock outlook. T-Mobile U.S. received a $110 price target from analysts at Royal Bank of Canada. The firm presently has a “neutral” rating. KeyCorp boosted their target price to $126 from $104 and gave the company an “overweight” rating. Nomura Instinet boosted their target price on T-Mobile U.S. to $110 from $102 and gave the company a “buy” rating.

We think it is good to buy at the current level and target at least $115 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“With the closing of the Sprint merger on April 1, T-Mobile has established itself on relatively equal footing with AT&T and Verizon. Postpaid market share now stands at nearly 30% with the company targeting 2-4% service revenue growth,” Morgan Stanley’s McLeod added.

“The company will be focused on the large integration ahead as it targets $6bn+ in run-rate synergies with the majority coming from decommissioning the legacy Sprint network and moving those subscribers over to a new 5G network. Fixed wireless broadband-enabled by the company’s enhanced mid-band spectrum portfolio could open up an $80 billion + adjacent TAM,” the analyst added.

Upside and Downside risks

1) Better net add and ARPU growth driven by new 5G network 2) Quicker synergy realization 3) Significant growth in fixed wireless broadband, Morgan Stanley highlighted as upside risks to T-Mobile.

1) High churn of Sprint subscriber base. 2) Difficulty in achieving synergy targets and integrating Sprint subscribers. 3) Wireless competition intensifies pressuring ARPUs, were major downside risks.

Markets’ Weather Weekly: Сloud-Computing and Office Software Business Missed Quarterly Estimates.

Overview and trends

U.S. weekly jobless claims hit 1.4 million, the first increase since March, as spiking virus cases halt reopening plans.

Microsoft shares tumbled as much as 2.8% on Thursday after its cloud-computing and office software business missed quarterly estimates. The share price slump caused nearly $46 billion dollars erased from the company’s market capitalization. Intel Corporation (INTC) shares were trading lower yesterday despite the company reported better-than-expected second-quarter EPS and earnings results.

As a result, the tech-heavy Nasdaq Composite finished down 2.3%. The S&P 500 closed down 1.2%. It was their worst performance since June 26. The Dow (INDU) fell 1.3%, or 354 points, its worst day in two weeks.

Stocks weren’t the only assets in the red. The US dollar, as measured by the ICE US Dollar Index, fell 0.2%. The index hit its lowest level since September 2018.

So far quarterly earnings come very mixed. On positive side there are good reports and good responses to the earnings reports from IBM (IBM), Texas Instruments (TXN), Biogen (BIIB), KeyCorp (KEY), as well as yesterday’s miracle from Tesla (TSLA) and upbeat sales commentary from Best Buy (BBY).

Then again, a close candidate for why things are “bad” would be the negative responses to earnings reports from Bank of America (BAC), Netflix (NFLX), Snap (SNAP), Capital One (COF), United Airlines (UAL), and Interactive Brokers (IBKR). Microsoft (MSFT) stock sank over 2% after reporting earnings that beat Wall Street expectations in most ways except in a key business. All these stories prompt us to be extremely vigilant, resourceful and contemplative – correct instrument selection and trade direction is key to trading success through this period!

The week was full of important news. US stocks climbed on Wednesday on positive earnings numbers from Microsoft and Tesla and as traders weighed raging tensions between the U.S. and China, a potential legislative extension to unemployment benefits, and coronavirus vaccine news. Donald Trump’s administration ordered the abrupt closure of China’s consulate in Houston, and official Beijing promptly responded with its intention to close the U.S. consulate in Wuhan in a tit-for-tat game condemned by Beijing as outrageous and unprecedented.

The U.S. government has struck an agreement with Pfizer (PFE) and BioNTech (BNTX) for up to 600 million doses of their COVID vaccine candidate should it be approved. This optimistic expectation and early preparation effort have created positive sentiment in terms of thinking about light at the end of the tunnel down the road.

Trading ideas

The Gold/Silver complex has caught renewed bids this week, which was tipped off by the major gold ETF – SPDR Gold Trust – showing up on the “Doji Week” scan back on Monday. The Doji Week scan is designed to find stocks that are in narrow ranges compared to prior week’s activity that is geared up for a stronger directional move.

There are a number of Gold/Silver – related ETFs and stocks appearing on the Wide Range Breakouts, Power Up, and Overbought results today as the market gets behind their momentum against a sliding US Dollar. As investors’ classics – Barrick Gold (GLD) and Newmont Corp. (NEM) – look increasingly overvalued by both investment multiples and technically, new kids on the block, such as Agnico Eagle Mines (AEM) and Kinross Gold (KGC) look increasingly promising. The two latter stocks unveil single digit price-to-sales ratios as opposed to double-digit ones for Barrick and Newmont.

AT&T (T)

The largest American telecom AT&T (T) beat estimates by 4 cents a share, with quarterly earnings of 83 cents per share. Revenue was in line with forecasts. The company said the COVID-19 pandemic impacted results across all its businesses. Thus, WarnerMedia revenue fell 23% to $6.8 billion as the pandemic shut down film production and movie theaters. Group revenue was down 9% YoY to $41 billion, roughly in line with the $41.1 billion consensus. In contrast, AT&T’s HBO Max boasted by around 36 million active customers (including legacy HBO subscribers), picking up 3 million in the quarter. Cash from operations was $12.1 billion with free cash flow of healthy $7.6 billion.

Total dividend payout ratio remains slightly below 50%. Nevertheless, we must not forget about this telecom’s two extremely important properties: number one, it is the value high dividend stocks. And number two, it is classic defensive countercyclical stock. Given increasing odds of exacerbating recession and noting almost ridiculously cheap valuations at P/E of less than 15, dividend yield of 7% and price-to-cash-flow of just 8 (yes, this is a single-digit number, eight), at the current price level AT&T is perhaps one of very few smart medium term buys.

Vladimir Rojankovski, Grand Capital Chief Analyst

Global Equities Struggle For Direction, EUR/USD Slumps To New Low, Boeing Raises Guidance

Asian Markets Mixed Amid Fears Of Slowing Growth

Asian indices closed the Wednesday session mixed following Tuesday’s deep declines. Fear of slowing growth has gripped the market despite word from the PBOC it would work to support economic activity in China. The Korean Kospi led decliners with a loss of 0.40% and was closely followed by the Hong Kong Heng Seng Index. Japan’s Nikkei led advancing indices with a gain of 0.37% followed closely by China’s mainland Shang Hai index. Energy stocks were among the regions biggest losers as oil prices move to a new two-month low.

Oil prices fell hard in Tuesday’s US session leaving the price of WTI sitting on a key support level near $66.00. The move began last week when US crude oil inventories increased 4X the expected amount offsetting fears sanctions against Iran would tighten the market. Yesterday’s mass sell-off was sparked by word from Saudi Arabia it would work to ensure global oil markets remain well supplied. The move trimmed 5.0% from the price of WTI and has the price near the bottom of a short-term trading range where it may find support.

The EUR/USD Falls As Economic Activity Falls Short Of Expectation

European indices moved higher in the first half of the EU session with the CAC leading the charge advancing more than 1.15%. The DAX and FTSE were not far behind, each, posting gains in the range of 1.0%, and all three indices supported by earnings. In France, shares of Kering and Societe BIC advanced more than 8.0% on better than expected earnings. Kering, the owner of iconic brands like Gucci, says sales are strong and gave a favorable outlook.

The EUR/USD fell hard during the EU session on weaker than expected economic data. The EU Purchasing Managers Index shows expansion within the EU is still happening but at a slower rate than in the previous month and much slower than expected. The reported 52.7 for the composite figure, both manufacturing and services, fell 1.4 points from previous and missed expectations by 1.2 points. The data raises concerns that EU growth is slowing faster than expected which is an indication the ECB may need to prolong its QE program past the indicated December end-date. The ECB will release its policy statement on Thursday and will likely produce a market moving event.

US Futures Make Triple Digit Swing

In the US equity futures went on a wild ride in the early pre-opening session. The Dow was indicated to open with a triple-digit loss until the release of earnings by Boeing. Boeing reported better than expected top and bottom line issued, a favorable outlook for its business, and raised full year guidance which resulted in a 5% gain for the shares of the stock. Other notable earnings in the pre-market session include AT&T and UPS. AT&T missed on the top and bottom lines sending shares down by 3.0%, UPS reported figures that were only as expected and sent shares of that stock down more than 2.5%.

Today’s action is going to be dominated by two things; earnings and the FOMC. A host of important earnings are due out after the bell including Barrick Gold (BKX), Ford (F), Microsoft (MSFT), and Visa. Before that look out for the Fed’s Beige Book which is due to be released at 2 PM EDT.

Charter Communications Inc. (NASDAQ:CHTR) Suffers Biggest Loss In Nine Years On Subscribers Loss Concerns

Shares of Charter Communications Inc. (NASDAQ:CHTR) suffered their worst sell-off in nine years after the company reported bigger than expected loss of video subscribers. The second largest cable provider said it lost 122,000 video subscribers in the first quarter, nearly triple a loss of 43,000 that analysts expected.

Video Subscribers Loss

Shares of the company tumbled by 16% amidst growing concerns about the company’s ability to hold on to TV consumers as most people resort to streaming content. The disappointing results are a stark contrast to last year’s performance where the company posted an increase in video subscribers for the first time in nearly two years.

In their defense, Charter Communication’s executives attributed the loss to the disconnection of customers who did not pay their bills. The company insists the situation is temporary and that the trend should improve in the second quarter.

However, Charter Communications losses continue to raise serious doubts about its long-term prospects. The losses come barely two years after the cable giant acquired two other cable giants, Time Warner Cable and Bright House Networks that were expected to stabilize the ship.

However, that has not been the case, and it has since emerged that the company is struggling to integrate the three companies into a single pricing and packaging strategy. The cable-TV losses essentially paint a clear picture of how cable giants are struggling to hold on to subscribers as online TV providers led by AT&T Inc. (NYSE: T) DirecTV continue to cause havoc.

Focus On Broadband Business

While the loss is a big concern, Charter is not the only company feeling the pressure in the TV broadcasting business. Comcast Corporation (NASDAQ:CMCSA), the market leader, reported a loss of 96,000 video subscribers in the quarter, worse than 60,800 that analysts were expecting. The loss marked the fourth consecutive quarter that the company has recorded losses in its video unit.

A change in the way people consume content has forced the likes Charter Communications to tweak their core business with the focus now being paid on broadband business. Cable giants are increasingly supporting internet videos by providing high-speed broadband, needed to support streaming services of the likes of Netflix, Inc. (NASDAQ: NFLX). The change has already started to bear fruits, Charter having gained 331,000 internet subscribers in the first quarter.

Q1 Financial Results

Investors sent the stock spiraling lower, despite the company posting earnings per share of 70 cents, up from 57 cents a share reported a year ago. Earnings also beat Wall Street expectations of 55 cents a share.

Net income attributed to shareholders increased to $168 million from $155 million reported last year. Revenues, on the other hand, rose slightly to $10.66 billion compared to $10.16 billion reported a year ago. Q1 revenue also beat Wall Street revenue estimate of $10.62 billion.

During the quarter, the company purchased 2 million shares for approximately $683 million. Cash flows from operating activities totaled $2.7 billion compared to $2.8 billion as of the first quarter of 2017. Charter Communication ended the quarter with a total debt of $69.8 billion.