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AT&T Inc. (T): Did This Company Suggest Their Stock Is Too Expensive?

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I’ve mentioned to several of my friends that after more than 20 years in the investment business, I can sometimes read between the lines and get to what companies really mean. When I look over earnings reports, sometimes there is a statement that might seem innocuous enough, but it almost jumps off the page because of its meaning. This is exactly what happened when I read over AT&T Inc. (NYSE:T) earnings report. There were several positives, and a few negatives, but this one statement meant more than anything else.

The best commercials, but still finishing second
AT&T Inc.There is no doubt that the new AT&T Inc. (NYSE:T) commercials are a hit. Beck Bennett is the adult actor that talks with the kids, and I’ve caught many friends comparing which spot is the funniest. That being said, great commercials can only take you so far, and that’s what AT&T Inc. (NYSE:T) is running into.

AT&T Inc. (NYSE:T) not only competes with Verizon Communications Inc. (NYSE:VZ), but also with Sprint Nextel Corporation (NYSE:S), and local telecoms. like CenturyLink, Inc. (NYSE:CTL) for customers. Whether it’s right or wrong, AT&T Inc. (NYSE:T) is always going to be compared to Verizon Communications Inc. (NYSE:VZ) when it comes to wireless performance. The two companies have all but locked up the industry, with Sprint and T-Mobile running a distant third and fourth.

When it comes to wireless, it’s really simple actually, AT&T Inc. (NYSE:T) is doing better than Sprint Nextel Corporation (NYSE:S), but worse than Verizon. If you look at analysts expectations for EPS growth, AT&T is expected to grow by 5.25%, which is better than the 5% at Sprint, but pales in comparison to the 9.25% growth at Verizon. If you look at current revenue growth, AT&T’s wireless revenue increased 3.4%, which was better than Sprint at 1.75% growth, but worse than the 6.8% increase at Verizon.

In fact, while AT&T and Verizon were nearly neck and neck with churn rates of 1.04% and 1.01%, Sprint wasn’t even in the same ballpark with a postpaid churn of 2.09%. However, if you look at Sprint’s core subscriber additions (without Nextel), Sprint actually outperformed AT&T, with 356,000 net additions to 296,000 additions at AT&T. Once again, neither of these companies could keep up with Verizon’s additions of 677,000.

Don’t get me wrong, there are some positives
Though AT&T finished second to Verizon by nearly every measure in wireless, the company outperformed when it comes to their wireline results.

The wireline business is a race to try and replace losses in voice connections, with additions in high-speed Internet and video subscribers. Looking at high-speed Internet additions, AT&T reported impressive growth of 8.7%. By comparison, Sprint reported high-speed Internet losses, CenturyLink, Inc. (NYSE:CTL) saw an increase of just 1.13%, and Verizon reported an increase of 3.36%. Clearly AT&T is winning business with their high-speed Internet offerings.

When it comes to video subscribers, the only peer that beat AT&T was CenturyLink, which reported an 11.67% increase in video customers. However, CenturyLink only has a few hundred thousand video subscribers, compared to 4.8 million at AT&T. Given AT&T’s much larger base, the company’s subscriber growth of 4.83% is impressive. In fact, AT&T beat Verizon’s video growth of 3.45%, and beat Sprint, which saw losses in video subscribers.

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