US CABLE, SAT. & TEL : AWS-3 reauction concludes

Research evidence excerpt

US CABLE, SAT. & TEL : AWS-3 reauction concludes

Refinitiv

Investment case, valuation and risks

AT & T (Neutral, Target Price USD26)

Investment case

While the long-term investment case for AT&T is not fundamentally broken, the near-

term headwinds are large enough to push us to the sidelines. The long-run returns we

expect from the company's investment in fiber and wireless are intact. However, in the

short term, competition in broadband is likely to pressure the premium multiple the

market has ascribed to AT&T's fiber business.

Valuation methodology

We value AT&T on a sum-of-the-parts basis, using DCFs to value the core business and

market multiples for the rest. We segment the main Communications business lines by

the infrastructure underpinning them: wireless, fiber, and copper. The wireless and fiber

business trade at an implied 2026 multiple of 7.5x and 16.2x, respectively. Our DCF for

the legacy copper business produces a negative value of -$1.6bn. We then value the

Mexican wireless business at 4x EBITDA. Putting it together, on a blended basis we are

valuing AT&T at ~8x 2026 EBITDA and just under 16.5x 2026 unlevered free cash flow.

Risks

To the upside:

Stronger fiber ARPU growth at AT&T

Cable being less aggressive in wireless

Lower immigration headwinds than expected

To the downside:

An even more aggressive approach from cable in broadband or wireless

Dish selling its wireless subscribers to a carrier other than AT&T

A bigger than anticipated unwind in working capital

An acquisition of large fiber assets

Additional spectrum spending

T-Mobile US (Outperform, Target Price USD275)

The US telco market appears increasingly fragile as convergent discounts spread and

fears of subscriber slowdown mount. But T-Mobile has strengthened its brand position