Back in March, I pointed out that AT&T's (T) acquisition of Bellsouth (BLS)
was no blunder. Potentially delivering $8 billion in new value, the
deal looks good for shareholders. Well, the market agrees. Since then,
AT&T shares have gained 20%, boosting the telecom giant's market
value by more than $20 billion.

AT&T shares have performed well over the past six months, and I expect them to add more value over the coming quarters.

horrible competitive conditions and grueling rounds of consolidation
since the great telecom market collapse of 2001 tested shareholders
patience. But I reckon with its biggest deals out of the way, AT&T
will continue to realize synergies and much improved profitability.

removing competitors, as AT&T did when it agreed to acquire
Bellsouth this year, the telco has the luxury of cutting costs with
little fear that a competitor will spend more to poach customers.

the same time, now that the telecom crowd has shrunk to just a few top
players, pricing conditions are improving for the first time in well
over a decade.

AT&T has also raised its forecasts for full
year profit margins and the amount of saving it expects from the
AT&T-SBC merger.

The company plans to save as much as $900
million this year; at first it had expected savings of $600 million.
Assuming AT&T can keep up its strong integration track record,
investors can hope for more savings from the Bellsouth deal.

matters in the telecom business, and bigger is better. For AT&T,
which generates more than $40 billion in annual sales, an extra
percentage point or two to profit margins can add up very quickly.

course, AT&T and Bellsouth continue to lose hundreds of thousands
of local telephone line customers every month. Many customers are
turning to cheaper alternatives offered by cable providers such as Comcast (CMCSA) and internet players like Vonage (VG).

said, many others are signing up for high-speed internet services from
AT&T and for wireless services from AT&T's Cingular business.
For the next several quarters, growth from internet and wireless
services and eventually video, when combined with cost cutting, ought
to offset phone line losses.

acquisition of Cingular and the integration of AT&T Wireless put
the new AT&T at the top of the US wireless industry. With roughly
as many subscribers as the 55% Verizon (VZ) – 45% Vodafone (VOD)
joint venture Verizon Wireless, AT&T's 100%-owned wireless business
stands to benefit more from wireless market growth than close rival

Best of all, with a whopping 4.5% dividend yield and
$10 billion buyback program in place, there is little downside share
price risk from here. It's not too late to tuck some AT&T shares

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center