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Wireless isn’t AT&T’s real problem: MoffettNathanson

Shares of AT&T (T) fell more than 4% on Tuesday after MoffettNathanson downgraded the stock to sell on the belief that the telecom giant has bigger problems than a rivalrous wireless landscape. 

“Let’s leave aside for a moment that all signs point to the wireless industry getting more competitive; the real problem is with everything else. ‘Everything else’ is 60% of revenues. Wireless will have to do an awful lot of heavy lifting,” wrote analyst Craig Moffett in a note to investors. 

BURBANK, CALIFORNIA - OCTOBER 29: Kevin Reilly, Content Officer of HBO Max and President of TNT, TBS, & TruTV, speaks onstage at HBO Max WarnerMedia Investor Day Presentation at Warner Bros. Studios on October 29, 2019 in Burbank, California. (Photo by Presley Ann/Getty Images for WarnerMedia)

The stock is up for the year, although Moffett says this is in spite of deteriorating fundamentals. He cites secular challenges in AT&T’s non-mobility segments, including its Entertainment Group, Business Wireline, and WarnerMedia, and despite the rally, says he is skeptical of what is to come.

“AT&T has delivered on its promises to de-lever its balance sheet and to, among other things, maintain stable EBITDA in the Entertainment Group… But even as the company has delivered on its promises for 2019, the picture for 2020 and beyond has gotten cloudier,” he said.

Philadelphia, Pennsylvania, April 22 2018: AT&T store in Philadelphia. There are over 2,200 company-owned AT&T stores.

Moffett said he thinks AT&T’s strong rally has left its valuation stretched, and its dividend yield less compelling (particularly when measured against the recent recovery in the Ten Year Treasury yield).

“At first glance, the top line target of 1-2% growth doesn’t seem overly ambitious. Nor does AT&T’s 2020 guidance for ‘stable margins.’ But the more we peel back the layers of AT&T’s various business segments, the more we worry that AT&T has overpromised.”

Pamela Granda is a producer on Yahoo Finance’s closing bell show, The Final Round. Follow her on Twitter

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