On Sunday, Analysts at KeyBanc downgraded shares of AT&T (T) to Underweight from Sector Weight, with a Price Target of $25. The $25 price target represents downside from the stock’s current price and is based on 6.2x analysts 2021 adjusted EBITDA estimates. The analysts see a tough road ahead for the company, as the struggles continue to grow for T and the business growth has slowed. Analysts revenue and adj. EBITDA estimates are 1.5% and 5.9% lower than consensus in 3Q, respectively, due to a variety of factors, most notably in Warner Media where analysts expect the combination of return to sports and added expense associated with HBO Max to impact profitability.

The analysts point to a variety of factors expected to impact profitability, including Mobility revenue, Entertainment revenue, and the aforementioned WarnerMedia operation. New competition from cable company MVNOs and T-Mobile are expected to hurt T’s mobility segment with subscriber growth having slowed. Analysts see T as also being a share donor in the competition for 5G to the company’s detriment, which suggests wireless service revenues are unlikely to recover in the near term. COVID-19 is also impacting cellular roaming revenue and should continue to until customers return to traveling.

In the Entertainment segment, cord-cutting is pressuring subscribers, and programming costs continue to rise, both of which are pressuring profitability. While T is expecting the Entertainment segment’s margins to stabilize in 2020, analysts believe continued pressure will occur given the shift of high-margin DIRECTV customers toward low-margin AT&T TV Now and general loss of subscribers.

Anecdotally, I have friends who have not paid a penny for PPV or specialized streaming events, due to cord cutting, so the concerns are real.

WarnerMedia especially has a difficult road ahead with analysts suggesting advertising likely to be weak in the near term. In addition, analysts see accelerating PayTV subscriber losses as a challenge for Turner. Analysts also expressed concern with HBO Max, suggesting it is unlikely to drive upside relative to consensus, and mentioning Warner Bros. has a long and difficult road to recovery.

Analysts lowered expectations across the board for T’s sectors, mentioning in the note, “We are lowering our Postpaid phone-only ARPU by $0.27 to $54.88. We are also lowering our Total video subscriber net additions to -1.1M from -900K. We expect industry wide video subscriber losses to be modestly worse, which drives our Turner subscription estimates lower. Our 2020 revenue and EBITDA estimates move lower by $407M and $180M, respectively, as a result of these changes.”

Analysts’ concerns point to investor worries and concerns. Some of those worries include T’s previously thought solid dividend yield. Some investors are concerned that T’s dividend yield has lagged pertaining to some of the huge media deals the company has executed. Mr. John Stankey, who took over as chief executive this summer, is working to convince investors that the deal making executives pursued to fortify AT&T in lean times won’t end up weighing it down. The CEO urged patience in a recent interview with The Wall Street Journal, saying that some of the company’s bets will take years to pay off but were the right choices long-term.

Disclosure: At the time of publication, I am long T (At&t). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.

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