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4 Reasons Why Investors Should Get Rid of AT&T (T) Stock


On Jul 11, 2017, U.S. telecom behemoth, AT&T Inc. T, was downgraded to Zacks Rank #4 (Sell) from Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past six months, the stock has contracted 10.6% while the Zacks classified Wireless National industry has declined 11.7 %.

AT&T operates in a highly competitive and saturated wireless U.S. market, where spectrum crunch has become a major issue. Most of the carriers are finding it increasingly difficult to manage mobile data traffic, which is growing by leaps and bounds.

The company announced a range of freebies and cash credits to bring in customers and lower the churn rate. However, this might strain margins going ahead. AT&T has been actively trying to attract customers with lucrative discounts in order to maintain a competitive edge over smaller carriers like T-Mobile US Inc. TMUS and Sprint Corporation. S These carriers have been utilizing similar strategies to lure customers.

Employees of AT&T’s wireline service in California and Nevada, represented by the Communications Workers of America (CWA) union, have recently disapproved of a tentative labor agreement. Under the terms of the proposed four-year contract, the company would provide a series of pay raises, improvements in job security and retirement benefits, continued affordable healthcare, and other improvements for its West and DirecTV West workers in California and Nevada.

This was the first proposed contract for DirecTV workers since AT&T’s acquisition of the pay-TV operator. The company’s representatives are yet to find a common ground with the CWA leadership regarding the contract. This is certainly a setback for AT&T.

Also, the company’s wireline division is struggling with persistent loss in access lines due to competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data and video) offerings by cable companies. These are weighing on the company’s revenues and margins. Moreover, AT&T’s quest for faster growth will increase subscriber acquisition cost in both consumer and SMB (Small and Medium Business) businesses putting pressure on wireline margins.

AT&T operates in a highly competitive market with players like Verizon Communications Inc. VZ, T-Mobile and Sprint Corp. Moreover, loss in access lines, operating expenses, and marketing costs associated with attractive discounts, regulatory norms and union issues are posing as near-term risks for the company’s growth.

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