Lehman Upbeat on Large Cap Wireline

Lehman positive on large cap wirelines ahead of AT&T (T) and Verizon’s (VZ) Q1 earnings:

We expect 1Q08 results at Verizon and AT&T to reflect the defensive nature of large-cap diversified telecom, particularly vis-a-vis more cyclical industries. As such, we would be buyers of T and VZ ahead of 1Q08 reports.

Among large-cap names, we anticipate a continuation of key treands:

1) sound wireless performance (ex. Sprint),

2) improving enterprise growth, and

3) stable consumer revenues as access line weakness should be offset by ARPU expansion from bundling of data and video offerings.

We believe the macroeconomic environment favours VZ and T given their diversification through exposures to wireless, and improving trends in enterprise. We expect to see slight weakness in wireline KPI’s given a potential acceleration in access line losses as the housing issues continue to bleed into telecom, and wireless substitution accelerates in urban areas…

T remains our top pick. We believe concerns of weakness in its consumer business are over emphasised, we remain more focussed on the wireless performance and enterprise results given the much larger implication these segments have on the compnay’s investment case.

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