AT&T Earnings: We Believe Investors Are Overly Concerned About Lead and Slowing Customer Growth

Increased transparency around free cash flow expectations and solid margin expansion seemingly weren’t enough to overcome concerns related to AT&T’s potential lead liabilities and a decline in wireless customer additions, which have weighed on the shares recently. AT&T struck a more defiant tone regarding the lead issue than Verizon, saying that lead was used in multiple types of infrastructure before the 1950s and that it has worked with regulators and employee unions for decades to ensure safe handling. We have slightly increased our capital spending estimates to reflect the potential need to remove lead-sheathed cables and modestly lowered our growth expectations, reducing our fair value estimate to $23 per share from $25. We continue to believe the market is overly pessimistic on AT&T's future.