What Did We Learn?

Before its Analyst Day in Dallas, Texas, AT&T announced revised guidance for the year, and provided an outlook for 2016 to reflect the closing of DirecTV. The company now expects 2015 earnings per share of $2.62 to $2.68, which most consider a positive starting point for the company. Management also noted that capex for 2015 will be in the $21 billion range. Amir Rozwadowski of Barclays explained, “Our initial take is that this is a pickup in spending. If we assume a half a year of ownership of DIRECTV, on a straight line basis that would suggest $1.5 billion in capex (assuming a steady $3.0 billion run rate). Coupled with AT&T’s prior capex outlook would suggest total capex of $19.5 billion vs. guidance of $21.0 billion.” During Analyst Day, more color came to light on the capex and the company’s 2015 and 2016 outlook. Jonathan Schildkraut of Evercore ISI noted that the $21 billion in capex for 2015 does include capitalized interest for spectrum, but that for 2016 to 2018, AT&T expects capital intensity (including merger related items) in the 15% range of revenues or lower. Jonathan Chaplin at New Street Research noted, “AT&T’s core businesses will all face tough structural headwinds over the next few years…The majority of AT&T’s value is still in wireless. The company’s primary structural challenge is capacity (33% of revenue vs. 21% of capacity).”