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Like It or Not, the Biggest iPad Winner Is AT&T

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Apple sticks with the telecommunications giant, despite network problems.

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AT&T (T) looks like an early winner with the iPad, research analysts covering the company say, although some of them pointed to potential problems this partnership could pose for the phone company.

Yesterday, hype as high as possible, Apple (AAPL) unveiled its new iPad, a portable tablet PC with multimedia capabilities.

The 0.5-inch-thick, 1.5-pound iPad allows users to browse the web, send email, enjoy photos, watch videos, play games, and read e-books. The price: starting at $499.

Apple announced that the iPad will operate on AT&T's network, a decision that pleased Todd Rosenbluth, who is the Telecommunications Analyst at Standard & Poor's Equity Research.

"The partnership makes sense," he tells us. "AT&T has been a key partner for Apple and it's been a win for both companies. AT&T is benefiting from it, and it has helped Apple to grow its base in the US."

He adds, "This appears to be an exclusive relationship. It will help AT&T get into new markets as traditional wireless post-paid customer bases become harder to find."

Rosenbluth points out that AT&T, which he rates a Strong Buy with a price target of $31, has twice as many smartphones using its network than any other carrier.

"AT&T and Verizon (VZ) are the dominant carriers in the US," he says. "But AT&T is growing wireless at a faster pace."

Rosenbluth does like Verizon as well, emphasizing that it's a well-run company which has had a lot of success of its own adding new customers. However, at this price point, he doesn't think the stock is looking like a bargain, and he rates it a Hold.

Meanwhile, over at Jefferies, research analyst Jonathan Schildkraut said that Apple's decision to stick with AT&T likely solidifies the phone company's position as a device leader.

However, the analyst also emphasized that the partnership could cause some headaches for AT&T, in his opinion.

Specifically, Schildkraut says that the usage patterns of the new iPad are of course unknown right now. But, he argues, given its multimedia capabilities, and the video functionality in particular, he assumes that the iPad could prove a network hog.

"This could drive incremental congestion issues on AT&T's already strained network -- leading to further network dissatisfaction, and potentially a need for ongoing higher levels of capital spending," Schildkraut wrote.

He rates AT&T a Hold with a price target of $30.

Switching gears, Schildkraut added that tower operators could be incidental beneficiaries as the iPad takes off. American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC) could gain as increasing data traffic will generally create a need for more tower-based infrastructure.

He rates all three companies as Buys.

Separately, this morning, AT&T released fourth-quarter results. The Dallas-based company said it earned $3 billion, or $0.51 per share -- a 26% jump from the year-ago period that matched analyst forecasts, according to Briefing.com.

For the quarter ended December 31, revenues slipped 0.7% year-over-year to $30.86 billion, in line with the Street's prediction.

The company also reported 2.7 million more total wireless subscribers in the fourth quarter, which was the second highest quarterly net gain in the company's history. Full-year wireless net additions totaled 7.3 million, equaling the company's best-ever annual total, to reach 85.1 million subscribers in service.

Rosenbluth liked what he saw.

"We were a bit more bullish on what the quarter would be," he says. "But, from a margin and wireless perspective, it was quite strong. They did add a nice amount of subscribers. AT&T also has a lot of cash to support its dividend."

The $1.68 dividend per common share currently equates to a 6.6% annual yield.

Where does the stock go from here?

For that answer, we checked in with Katie Stockton, the Chief Market Technician at MKM Partners, who argues that downside risk is limited here.

Stockton notes that AT&T has pulled back within a long-term uptrend channel and appears to be near a compelling entry point.

"There is support close to current levels based on the long-term uptrend line, and the 200-day moving average is trending higher nearby," she wrote in a recent client note, adding that the first resistance on the chart is above $28 based on a gap, although it's only a minor hurdle.

Stockton concluded, "We do not expect AT&T to be a source of upside leadership from a relative strength standpoint, but we believe it will participate in further market gains."
No positions in stocks mentioned.
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