AT&T - Spin, Spin, Spin-Off
Independent Buy-Side Research by The-Adviser.com - Monday, 2/14/2000
Basic Detailed Chart Research
2/14/00 - (Analyst is M.D. Porcelain) - New York -Recently, AT&T, one of our Top Ten Picks in 2000, announced its intention to create, issue and distribute shares of a ?tracking stock? for their wireless business, the AT&T Wireless Group. A portion of these shares will first be sold through via an initial public offering and the remaining shares will then be distributed to the original holders of AT&T common stock. What does this mean to AT&T stockholders? We believe it means good news.
If the wireless shares rise subsequent to the distribution of the AT&T Wireless Group tracking stock, AT&T?s stock should increase to reflect the proportionate ownership share. We believe that Wall Street and momentum players will react quite positively to the initial public offering; that the existing price of AT&T does not reflect this upside; accordingly, we believe that AT&T shares are extremely undervalued.
Consistent with our view of wireless stocks, the AT&T Wireless Group stock should explode. AT&T is one of the top US providers of wireless service with more than 12 million subscribers and it expects that its network and affiliate markets will cover 70% of the US population by the end of FY2000. As the Internet converges with wireless communications, we expect the AT&T Wireless Group will be a major wireless play. The sister companies should be able to leverage the AT&T brand awareness and consumer confidence, take advantage of the others marketing and sales efforts and network capabilities. We expect that the companies will bundle their product and service offerings to combine wireless with long distance and local service as well as, broadband and Internet services.
The wireless data market is just in its infancy. According to Datacomm Research, data represents less than 2% of wireless traffic today. Our buy-side research team expects that the evolution of wireless data services to be similar to that of the Internet, with email and other text messaging leading the way. We expect growth in wireless data to come from both corporate and consumer use for; email access, Internet content, Web radio, banking, e-commerce and shopping services. The future for both stocks looks terrific.
AT&T?s stock is not without risk. The Company is struggling with rapidly increasing price competition in its core long-distance market. Recent acquisitions of TCI, Teleport Communications and Media One are proving difficult to integrate. AT&T?s investment in the cable business is aggressive and is a play on the broadband market.
Reward does not come without risk. We like both the risk and the potential reward. The stock, which closed Friday at 48 5/8, is near its 52 week low. We believe the stock is undervalued and should provide superior short and long-term total return. PE on the stock is under 30 with a dividend yield of 1.27% to provide some income. Our twelve-month target price is $65. Momentum investing in the wireless stock could provide significant short-term upside. Our 2000 estimates are as follows:
Q1E Q2E Q3E Q4E Year
2000 EPS $.58 $.59 $.60 $.60 $2.37
We continue our STRONG BUY RATING.
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