AT&T Earnings: Brace For Impact

After a good day in telecom marked by the solid results released by peer Verizon (NYSE:VZ), AT&T (NYSE:T) will be the next U.S. giant in the space to report on its own 3Q performance. Quite a bit of the surprise factor might be absent from the print, however, as AT&T’s management has issued a partial pre-announcement in the wake of the season’s natural disasters, softness in legacy video subscription (well covered by Stone Fox Capital) and fewer handset equipment upgrades.

(Photo Credit: Business Insider)

The Street is betting on revenues of $ 40.1 billion, suggesting a -2% YOY decline that will be caused, to a small extent, by the U.S. storms and the earthquake in Mexico. Likely driving a larger piece of the drag will be legacy video, expected to see a record high, and a worrisome decrease in the subscriber base of 390,000. The projected strong user metrics on the DirecTV Now side of the business will probably not be enough to counter the DirecTV and U-verse headwinds, considering the lower per user revenue generated by the online platform. EPS is estimated to come in at $ 0.75, no lower than the earnings expectations from before the pre-announcement.

On the wireless side, and if Verizon can be used as a leading indicator, I would not be surprised to see margins dip in the YOY comparison. The Big Four carriers in the U.S. have been fighting a fierce competitive war that saw all players introduce unlimited postpaid plans in 2017 (Business Insider covered the plan comparison across the industry very well). As I have argued recently, the likely impact of these initiatives will be lower pricing and network cost pressures to support the large data services. On a more positive note, AT&T shareholders are probably hopeful to see postpaid net adds maintain the momentum gained in 2Q17, as well as churn at or around 1% – which would be in line with management’s October statement that it “continues to see low postpaid phone churn levels.”

Considered by me to be one of AT&T’s less-talked-about jewels, Mexico mobility could have a tough 3Q17 in the wake of the natural catastrophe in the country. But regarding this piece of the business, I continue to hold a long-term view that the runway is set for AT&T to continue to generate solid growth in the region.

My thoughts on AT&T stock

The last few months have not been a walk in the park for the giant Dallas-based telecom company. With headwinds hitting from many directions (at times literally so, in the case of September’s hurricanes), the stock has suffered a rarely seen -10% decline in a short period of only two weeks and is now back to February 2016 levels.

Chart

T PE Ratio (Forward) data by YCharts

Company/Ticker Forward P/E LT EPS Growth Forward PEG
AT&T (T) 12.2x 3.8% 3.3x
Verizon (VZ) 13.2x 3.3% 4.0x

The silver lining, however, is that T hasn’t looked this inexpensive in a while – since January 2016 on a forward P/E basis, to be more precise. Assuming that its dividends will be safe (check out this great article on the subject) and, better yet, will continue to grow in a near-straight line like they have over the past 30 years, the company’s impressive 5.5% trailing yield makes an investment in the stock look more like a convertible bond play. In other words, investors that buy T today collect on the very rich quarterly payments with the option of benefiting from the eventual appreciation in the stock price over time.

Call me a biased shareholder, but despite the known challenges, I find an investment in T at the current depressed levels a rare opportunity ahead of what I believe will be positive long-term catalysts for the company.

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Disclosure: I am/we are long T.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

AT&T Wireless Workers Try To Bring Political Pressure To End Contract Stalemate

Negotiations have dragged on since February.

As a contract standoff between AT&T and 21,000 unionized workers in its mobile business drags into a eighth month, the employees are trying to increase political pressure on the carrier.

So far, 255 state and local politicians have sent letters to AT&T CEO Randall Stephenson backing the workers, the Communications Workers of America union says. Among the senders are six Democratic senators and numerous members of California’s delegation in the House of Representatives.

“While we are aware of the changes that have taken place in the telecommunications industry, we know that AT&T wireless workers are the driving force behind your most profitable division,” 12 members of the Arizona House of Representatives wrote to Stephenson in one recent letter. “They deserve to share in the company’s success and growth.”

Still, AT&T does not appear moved by the campaign or earlier moves by the mobile workers in 36 states and Washington, D.C., including a protest outside Apple headquarters for the debut of new iPhones last month and a short strike in May that forced many wireless stores to close for a weekend.

Although the workers have concerns about wages, health benefits, and other issues, job security and sales commission rates appear to be at the center of the dispute. To highlight the issue of call center jobs being outsourced to foreign countries, some AT&T workers traveled to the Dominican Republic in early May to meet with their counterparts there who now handle AT&T customer service calls.

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AT&T said on Friday that it has been in touch with the letter writers and plans to continue to bargain with the workers, whose contract expired in February, to reach a “fair” agreement . “We regularly communicate with our stakeholders regarding labor issues and bargaining, and we’ve done so where we’ve received any letters from legislators,” an AT&T spokesman said.

The CWA says AT&T won’t negotiate over job security at call centers and retail stores where many of the employees work. “AT&T has increased its profits by cutting workers’ commissions, refused to bargain over job security even as it cut hundreds of call center jobs this year alone, and increasingly moved to low-wage contractors for its retail and call center operations,” Dennis Trainor, vice president for CWA district 1, said in a statement. “That’s not how America’s largest telecom should be acting.”

AT&T t has a long history of labor peace, though the May strike interrupted a run of more than four years without a walkout. The company says it has reached 32 agreements covering some 145,000 workers since the beginning of 2015. The strike in May, which also included 17,000 workers in AT&T’s telecom business, followed last year’s bitter, seven week strike at Verizon vz .

Tech

AT&T Establishes Strategic Partnership with AWS for Cloud Competitiveness

Partnership with Amazon would privileged AT&T clients to use AWS Cloud in a variety of ways, included big data, secure networking, and connect devices.

aws-and-attGreatResponder.com Telecommunication giant AT&T announced a partnership with cloud computing giant Amazon on Thursday. The terms and conditions of the deal were not disclosed to the media, but a news released from AT&T said, the company used Amazon cloud computing based web-services on their multiple devices the services including secure networking, big data and devices and more.

AT&T’s NetBond method has a crucial role in the deal with Amazon, NetBond provides a secure way using virtual private network to connect or bond with any cloud provider of your choice. The AT&T network nearly connected around 29 million devices in the world wide, and now those devices are managed and controlled by AWS Cloud IoT services.

Terry Wise, Vice President of World Wide Partner Ecosystem and Amazon Web Services, Inc, said, “Customers of all sizes are quickly migrating to the AWS Cloud to reduce their data center footprint, become more agile and take advantage of innovation in areas such as IoT, Big Data and Analytics,” “Advanced connectivity and network solutions are critical to enabling our customers to get the most out of our services. We are excited to expand our alliance with AT&T and deliver new solutions designed to enable customers to accelerate their journey to the AWS Cloud.”

This partnership will focus on three most important business areas including: Business Cloud Networking, IoT – Internet of Things, Threat Management.

Firstly, AT&T’s NetBond has been a first choice of the customers since launched, because of high speed, highly secure network connection to use AWS cloud. NetBond has a recorded of fourfold growth connections and eightfold in the traffic since last year. AT&T and AWS are now working together to enhance end to end user visibility to secure high speed network connections throughout the Internet.

Secondly, AT&T and AWS will jointly introduce AT&T – IoT, attached various sensors and devices are pre-configured to share data on the AWS Cloud securely. AWS IoT, nearly connect to all devices in the world wide. There are some tools are introduced, namely AT&T starter kit and Data plans using this, customers able to build their own solution with AWS IoT and AT&T IoT.

Thirdly, both the companies are very serious about the security threats. They will work together with multiple tools, that are very effective and faster to detect and respond more efficiently.