Jefferies sees AT&T's wireless margins rising in 2Q even as it sheds phone customers

AT&T (NYSE: T) will likely see its wireless margins rise through the current quarter even as it continues to bleed mobile phone customers, Jefferies analysts said this morning.

The analyst firm issued a research note outlining its second-quarter predictions for each of the major U.S. carriers, upping its forecast for AT&T's wireless margins to 49.3 percent from a prior outlook of 48.8 percent. Jefferies analysts said the "relatively benign competitive environment" in the U.S. market could help stabilize profits for the nation's second-largest mobile network operator.

"We make modest volume adjustments and maintain our below consensus 186,000 postpaid adds, but narrowly improve handset losses to -250,000 (from -264,000)," Jefferies analysts wrote. "Given the heavy investment in Mexico, we temper international profitability, but continue to see margin expansion opportunities."

Jefferies also predicted Sprint (NYSE: S) will see a second-quarter churn of 1.59 percent, up from a previous estimate, "driven by tablet subscribers coming off of promotions." Sprint is expected to report 75,000 net postpaid additions during the period, including 50,000 net handset adds, but postpaid ARPU will likely decline "as penetration of financed devices narrows with overall penetration of such plans." The No. 4 carrier in the U.S. will continue to emphasize profitability and cost-cutting as it tries to regain its financial footing, Jefferies said.

Meanwhile, the firm lowered its predicted adjusted EBITDA for T-Mobile by 6 percent to $2.39 billion due to lower-than-expected leasing volumes as well as the impact of its latest promotional campaign, which includes weekly giveaways and free shares of the company's stock. Jefferies analysts said T-Mobile will likely add 900,000 branded postpaid users during the quarter.

"We narrowly reduce our handset/postpaid net adds by 25k given softer industry volumes, though we believe we remain above consensus for both metrics. We also temper our ARPU estimate, and now forecast a modest 0.1% sequential growth, excluding leasing and data stash impacts," the analysts wrote.

Finally, Jefferies lowered its estimates for Verizon's (NYSE: VZ) second-quarter earnings per share to 94 cents, down from 97 cents, due to the impact of the recent labor strike. The stoppage will result in lower wireline EBITDA margins in the second quarter, Jefferies said, "though we continue to expect a snap back in 3Q as the impacts should be largely isolated to 2Q."

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