Shares of telecom and media company AT&T (T) – Get Report fell Thursday after analysts at Morgan Stanley downgraded the stock and lowered their price target on concerns about risks tied to the company’s 5G plans.
The analysts downgraded AT&T shares to equal-weight from overweight and reduced its price target to $34 from $36 per share.
“1) We are increasingly concerned that the C-Band spectrum auction will
be more expensive than expected, creating incremental strategic and financial risk
for AT&T, 2) We see a robust 5G smartphone upgrade cycle in 2021 which creates risks for AT&T based on our proprietary AlphaWise analysis and 3) Lack of near-term catalysts after a dividend freeze and provision of early guidance on 2021
free cash flow,” wrote analyst Simon Flannery.
The firm says AT&T will need to acquire a large allocation of C-Band wireless spectrum in order to build a mid-band 5G network that is competitive with rival T-Mobile’s (TMUS) – Get Report 2.5 GHz rollout.
While AT&T has diversified its business in recent years through media acquisitions, telecom remains the company’s most important business, generating a little more than half of group EBITDA.
“AT&T’s higher
leverage could put them at a disadvantage in this auction compared to Verizon,” Flannery said. AT&T can either “a) compete aggressively and spend whatever it takes to build a strong position in
all major markets in both A and BC blocks, but this could be expensive; recall in the AWS-3 auction AT&T spent $18.2B, or b) they could choose to be more
selective, scaling back their spend focusing on acquiring less spectrum primarily
in the BC blocks.”
AT&T shares fell 1.62% to $29.80 in morning trading Thursday.
