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Jan. 30, 2020, 2:25 p.m. EST

AT&T stock gets a downgrade as analyst braces for imminent wave of 5G deals

If carriers get more promotional with the launch of new 5G phones, UBS says wireless profits could suffer

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By Emily Bary


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Churn has ticked up at AT&T and across the wireless industry.

Wireless carriers are likely to heap on the promotions as more 5G phones hit the market which could be good news for consumers but less positive for wireless-industry earnings.

An expected wave of 5G promotions has UBS analyst John Hodulik feeling nervous about AT&T Inc.’s /zigman2/quotes/203165245/composite T -0.64%  prospects, prompting him to downgrade the stock in a Thursday note to clients. The stock is up about 0.2% in the trading session.

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“Wireless generates half of AT&T’s profits and continues to be the key growth driver of the business,” Hodulik wrote. “We believe 2019 was the low-point for wireless competition and expect the launch of the 5G iPhone in 2H to lift upgrade rates off record lows, increase churn and lead to intense promotional activity.”

Apple Inc. /zigman2/quotes/202934861/composite AAPL -0.10%  is widely thought to be planning a 5G phone launch in the fall, while Samsung Electronics Co. Ltd. /zigman2/quotes/209800866/delayed KR:005930 +0.60% has a smartphone-unveiling event scheduled for February.

The downgrade comes a day after AT&T reported quarterly results which showed an increase in subscriber churn rate. Higher churn was a trend across the industry, showing up in Verizon Communication Inc.’s /zigman2/quotes/204980236/composite VZ +2.98%  and Sprint Corp.’s  numbers as well. He thinks that trend will “intensify” as the year progresses.

Hodulik moved his rating on AT&T down to neutral from buy while lowering his price target to $39 from $42.

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Wireless competition was also an issue in the commentary that followed Verizon’s Thursday report, with some analysts writing that they were hoping to see the company’s more aggressive promotional stance result in a better financial payoff. The company’s service revenue and average revenue per user both came in shy of expectations.

Shares of the big wireless names have lagged the market over a three-month span, with AT&T’s stock down 2.9%, Verizon’s down 3.4%, and T-Mobile US Inc.’s /zigman2/quotes/204659678/composite TMUS +0.83%  off 3.6%. The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.48%  has increased 6.8% in that time.

/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 30.86
-0.20 -0.64%
Volume: 43.75M
May 29, 2020 3:59p
P/E Ratio
15.62
Dividend Yield
6.74%
Market Cap
$219.88 billion
Rev. per Employee
$637,332
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 317.94
-0.31 -0.10%
Volume: 38.40M
May 29, 2020 4:00p
P/E Ratio
24.92
Dividend Yield
1.03%
Market Cap
$1378.06 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/209800866/delayed
KR : S. Korea: KRX
50,700.00
+300.00 +0.60%
Volume: 27.60M
May 29, 2020 3:30p
P/E Ratio
16.18
Dividend Yield
2.79%
Market Cap
₩344388.00 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/204980236/composite
US : U.S.: NYSE
$ 57.38
+1.66 +2.98%
Volume: 34.26M
May 29, 2020 3:59p
P/E Ratio
12.92
Dividend Yield
4.29%
Market Cap
$237.44 billion
Rev. per Employee
$905,626
loading...
/zigman2/quotes/204659678/composite
US : U.S.: Nasdaq
$ 100.04
+0.82 +0.83%
Volume: 9.79M
May 29, 2020 4:00p
P/E Ratio
24.60
Dividend Yield
N/A
Market Cap
$123.63 billion
Rev. per Employee
$832,885
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/zigman2/quotes/210599714/realtime
US : S&P US
3,044.31
+14.58 +0.48%
Volume: 4.38B
May 29, 2020 5:14p
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Emily Bary is a MarketWatch reporter based in New York.

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