AT&T: Higher Mobile CapEx Could Drag Down Stock

| About: AT&T Inc. (T)

Trefis members have created forecasts for two key drivers of AT&T’s (NYSE:T) stock over the last week: (1) Mobile CapEx (As % of Mobile Gross Profits) and (2) Mobile Plans & Phones Gross Profit Margin. Their forecasts suggest that Mobile CapEx (As % of Mobile Gross Profits) trends higher than the Trefis forecast, while Mobile Plans & Phones Gross Profit Margin is in line with the Trefis forecast. These projections suggest a combined downside of around 6% for AT&T’s stock.

Mobile Plans & Phones is the most valuable division, constituting 43% of the $38 Trefis price estimate for AT&T’s stock. In comparison, Internet & TV and Phone Landlines account for around 19% and 15%, respectively, of the stock. AT&T primarily competes with Sprint Nextel (NYSE:S) and Verizon (NYSE:VZ) in the mobile phones business.

Given that mobile plans and phones form the core business, AT&T’s stock is quite sensitive to (1) Mobile CapEx (As % of Mobile Gross Profits) and (2) Mobile Plans & Phones Gross Profit Margin. Below are charts showing recent estimates created by Trefis members for the two drivers.

1. Mobile CapEx (As % of Mobile Gross Profits)

The average of forecasts for Mobile CapEx (As % of Mobile Gross Profits) created by Trefis members indicated a projected increase from about 22% in 2010 to nearly 26% by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from about 20% in 2010 to 22% by the end of the Trefis forecast period. The member estimates imply a downside of 7% to the Trefis price estimate for AT&T’s stock. In the past, Mobile CapEx (As % of Mobile Gross Profits) has increased from 15% in 2007 to 18% in 2009.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of AT&T’s stock to Mobile CapEx (As % of Mobile Gross Profits).

2. Mobile Plans & Phones Gross Profit Margin

The average of forecasts for Mobile Plans & Phones Gross Profit Margin created by Trefis members indicated a projected decrease from about 59% in 2010 to about 53% by the end of the Trefis forecast period, mostly in-line with the Trefis forecast. The member estimates imply an upside of 1% to the Trefis price estimate for AT&T’s stock. In the past, Mobile Plans & Phones Gross Profit Margin has decreased from 70% in 2003 to about 60% in 2009.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of AT&T’s stock to Mobile Plans & Phones Gross Profit Margin.

Disclosure: No positions