investora2z Thursday, 10/31/13 10:52:48 PM Re: None Post # of 2515 The earnings did not disappoint, and the stock has recovered after a small correction. It has done a nice rebound and is closing in on the recent high of $39. Crossing that will take quite an effort, but if that happens, that will be a positive signal. The company has been doing reasonably well, but the leverage has been increasing. Despite the size of the company, the $75 billion net debt is huge. The recent news about takeover of Vodafone (VOD), albeit in a complex deal, indicates that the management is always open for more M&A. Though this will help in inorganic growth, the leverage needs to be kept in mind. Many analysts have recently emphasized on this weakness of the company. One analyst on seekingalpha stated that AT&T continues to build up leverage in order to please shareholders. The high payout of 120% is not sustainable without it taking recourse to debt. Share repurchase programs also add to the pressure. This may increase the returns to the investors, but ultimately those gains may be lost if the stock price declines. While leverage may be good for creation of new infrastructure, upgradation etc., dividends based on debt are not too healthy. Sale of assets to Crown Castle International (CCI) will help, but the amount is low relative to the debt. Servicing of debt puts pressure on the margins. New and old competitors are getting more aggressive, and increased cannibalization of new smartphone sales by used phones makes matters more difficult. Used phones, which are available through companies like Usell.com (USEL), are likely to cannibalize 8% of new phone sales by 2018. AT&T has taken steps to tackle competition, and acquisition of Leap Wireless is likely to help in the long run. However, analysts are recommending to remain a bit cautious, mainly because of the possibility of even higher leverage in the future.