AT&T might have the right plan with Time Warner and fresh video options, but a new analyst note says it’s going to take a lot to navigate that journey.

Analysts at Wells Fargo downgraded shares of AT&T (NYSE: T) on Wednesday amid concerns about margins and spending for the Dallas-based company after it closed its acquisition of Time Warner in June. The note said the company’s closely watched dividend should be safe, however.

There are “many new balls to juggle (and invest in) with Time Warner assets,” the analysts said. “Entering a new sector by owning media content, AT&T is destined to learn maintaining the content machine (and the talent behind it) is not inexpensive.”

AT&T is undergoing a transformation that’s pushing it far beyond its more traditional business of providing wireless and broadband services. Even for a company of AT&T's size, its acquisition of Time Warner was massive, with a price tag of $85 billion. The transaction delivered big-name assets such as HBO and Warner Bros.

Shares of AT&T dropped nearly 2 percent by 10 a.m. Central Time on Wednesday.

While the analysts said wireless revenue should improve, margins for AT&T's entertainment and enterprise business raise concerns. They pointed to the changing landscape for video services as consumers transition to online video options.

Another concern: getting rid of debt, even as AT&T has many areas it needs to be spending on, including with networks.

Its “capital is being pulled in many directions – but de-leveraging likely has to be the near-term focus,” analysts said.

By: DocMemory
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