Q2 Preview: AT&T (T) May Have the New iPhone, But Exactly How Many Are New Customers? (VZ, AAPL, MOT, More...)

Shares of AT&T (NYSE: T) are trading slightly lower ahead of the company's second quarter earnings report, expected out before the market opens tomorrow, July 22, 2010. Shares are down 0.08% to $24.76, on lower than three-month average volume.

T is expected to report EPS of $0.57 on revs of $30.90 billion. Last quarter, the company reported EPS of $0.59, ex-items, and revs of $30.6 billion, compared to the consensus of a $0.54 EPS and $30.72 billion in revs. For Q209, AT&T posted EPS of $0.54 and revs of $30.73 billion, both beating views.

Shares of the stock have slid slightly through the quarter, dropping 5.8% to $23.77 at the end of June. The stock is currently trading 8.8% lower since the onset of 2010.

AT&T is currently trading at a forward P/E of 11x FY10 EPS, compared to 18.5x for Apple (Nasdaq: AAPL), 12.2x for Verizon (NYSE: VZ), and 15.1x for Qwest Communications (NYSE: Q).

Data from Bloomberg shows that 19 analysts have a Buy rating on the shares, 16 have a Hold, and none suggest to Sell. The analyst price target average is $29.74, with a high of $34 and a low of $25.

Analyst Ratings Through the Quarter
Cowen & Co. started T at Outperform in mid-May.

BTIG started AT&T with a Neutral rating.

Davenport downgraded the shares from Buy to Neutral.

At the end of June, Goldman Sachs cut their outlook on AT&T, noting that 90% of new iPhone 4 sales went to existing subscribers. Goldman has a Buy rating and $34 price target on the shares.

Summary
J.P. Morgan sees a Q2 slowdown from 2009 highs, though the iPhone is likely to drive net adds higher sequentially, but not as much of a boost as in prior years. Wireless margins are expected to grow contributed from iPhone users as well as high-aARPU smartphone users. JPM doesn't expect to see improvement in enterprise trends. JPM forecasts 590K net adds for the quarter, compared to their prior estimate of 695K, and from 512K in Q110.

Deutsche Bank, with a Hold rating and $30 price target, sees minimal impact on net adds following the iPhone 4 launch. Margins will be pressured, as they estimate 85% of iPhone sales were upgrades, compared to 60% - 70% historically. Wireline will have comtinued moderation, with some seasonal deceleration in U-Verse and broadband adds. Deutsche has an EPS estimate on the stock of $0.54, with $30.7 billion in revs, both coming in below consensus. Deutsche sees postpaid net adds of 550K for the quarter.

AT&T may have also lost some customers when, in June, it stopped allowing customers to sign up for their unlimited data plan for iPads and smartphones. New customers now have to sign up for cheaper plans, in which the customer may have to pay more if they go over their plans limits. Also, the hype about dropped calls may have dwindled from the fourth quarter 2009 and last quarter, but be sure that some still have it on the back of their mind, as evidenced by Sprint (NYSEL S) runnig low on HTC EVO 4Gs and Verizon selling out of Motorola's (NYSE: MOT) DROID X on the first day.

AT&T, Inc. is expected to release their Q210 earnings on Thursday, July 22, 2010, at approximately 7:00am EDT. Stay tuned to StreetInsider.com's Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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