AT&T’s Update Spells Good News for Shareholders

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AT&T (NYSE:T) is a household name that needs no introduction. It is a blue chip stock in the Dow Jones Industrial and is the highest yielding of all the Dow components, sporting north of a 5 percent yield depending on the current share price, which at $35.19 translates to 5.2 percent. The purpose of this article is to address the update that the company just gave and its comments regarding its guidance.

What caught my attention is that the company reported continued progress in the second full year of its Project VIP network investment plan, strong second-quarter wireless trends, and an increase in its full-year 2014 revenue guidance, while reaffirming its full-year guidance for consolidated margins, earnings per share growth, capital spending, and free cash flow. The first piece of good news is that AT&T’s Project VIP network transformation plan, announced in 2012, is ahead of schedule: The 4G LTE network now covers nearly 290 million people, and the company’s Project VIP broadband build is expected to take fiber to more than 400,000 new business customer locations by the end of the second quarter.

In mobility, AT&T expects to report second-quarter results that include postpaid subscriber net adds exceeding 800,000. The company anticipates approximately 3.2 million AT&T next smartphone sales, which have risen throughout the quarter and now are expected to be approximately 50 percent of total sales and approximately half of the company’s postpaid smartphone customer base. The AT&T Next and Mobile Share Value plans are driving a shift in the company’s wireless revenue components, resulting in higher equipment revenues and lower service revenues and average revenue per user, with no service revenue growth expected in the second quarter.

The company expects second-quarter wireless service earnings margins to be pressured year-over-year due to the increased sales activity and strong customer movement to the no-device-subsidy Mobile Share Value plans. Wireless service earnings margins are expected to be more than 40 percent in each of the three remaining quarters of 2014.