Minor iPhone Impact on AT&T

| About: AT&T Inc. (T)

With the new iPhone to be sold exclusively at Cingular, I was wondering how much this deal could impact the price of shares and EPS of AT&T (NYSE:T). I did some research and added some numbers together and I’ve come up with something that should be close to reality.

Based on a quick analysis, I’ve come up with a 0.03$ per share for 2007 and 0.09$ per share for 2008. At a 14-time earning, we're looking at a little bit more than a dollar per share forward looking. That is pretty in line with Credit Suisse, whose upgrade target is from $38 to $39.

To come up with this number here is the thesis:
4 million iphones sold in 2007 and 8 million iphones sold in 2008.

2007:

  • 1 million new customers at an average 80$/month
  • 1 million up sale (adding data service) 20$/month
  • 250,000 customers not leaving Cingular 80$/month
  • 1.75 million not having any impact, already accounted in the previous estimate
  • New revenue 1.44 billion // pre tax income : 302.4 million // Net income 195.95 million // 6.2 billion shares. EPS = 0.03

    2008:

  • 2 million new customers at an average 80$/month
  • 2.5 million up sale (adding data service) 20$/month
  • 500,000 customers not leaving Cingular 80$/month
  • 3 million not having any impact, already accounted in the previous estimate
  • att logo
    New revenue 2.52 billion // pre tax income : 529.2 million // Net income 342.92 million // 6.2 billion shares. EPS = 0.06 + recurring revenue from 07 = 0.09

    Is it something that will really impact the price? In all probability it will have a positive effect on the price, but it is not major. Having said that, I do believe that AT&T is still a decent investment at current price level. You get a nice yield from the dividend at 4+ %, and I do believe that most analysts are missing something.

    The forecast is calling for 08 and forward for a decrease in wire line and single digit increase in wireless. I agree with the wire line forecast, but I’m more optimistic for the wireless (as more apps like the iphone will get the market, you will have more revenue from data , something not well taken into account in the forecast.) Secondly, I think that broadband should help growth in the next couple of years, as more and more broadband access will be needed for internet applications, video, file sharing, video email etc. And I think analysts are not forecasting this well. There's also a nice momentum going on; my expectation is 40$ to 45$ within a year, and adding the dividend you're looking at maybe 20% return within a year, with limited down size.

    T 1-yr chart


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