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The Lupo-Kioutas Enterprise Business Model© (patent pending) and AT&T Company Report Card.

Not much has fundamentally changed at AT&T since our last research report, in December 2006.  As with all of our company specific equity analysis, we utilize the Lupo-Kioutas Enterprise Business Model© to determine a company's core profit engine that drives actual earnings and revenue.  Below is a brief report card from the model as it pertains to AT&T.  For more on the enterprise business model click here.

In summary, the AT&T enterprise business model makes IBM, and other Dow Jones components, look like a trailer park of nunneries parked next to the brothel of AT&T.  Historically, these firms fair poorly for their investors.

Fundamental Analysis:

The FCC is a fickle group, and apparently one with little memory.  The original break-up of AT&T was designed to benefit consumers, and spark innovation in telecom.  Yet, here we are, after only 23 years, and monopoly is once again viewed as a good thing, particularly after the carnage in the telecom space, via the dot com bust.  In the long run, not even AT&T shareholders will benefit from the squelched competition.

In addition, AT&T nearly flunks the enterprise business model, with respect to transparency.  In the June 23, 2006, ATT Senate Antitrust Subcommittee, (antitrust means 'monopoly' for the historically challenged) CEO Whitacre snaked his way around direct questions regarding customer information leaks to the US National Security Agency, (NSA). Recent wire reports state that, "He was not forthcoming about this issue".  That is a euphemism for obfuscation and prevarication, otherwise known as good old fashioned lying. 

From the shareholders perspective this is critical, since if management is less than honest with congress, what can the shareholder hope for in fabulously complicated financial reports and forward looking leadership statements?  Stated another way, if senior management thinks nothing of wantonly impeaching their own credibility, is it logical to think that they hold shareholders in any higher esteem?

Barron's reported over the weekend some lightweight analysis on the future of AT&Ts fundamental valuation and earnings growth.  While some of the work is valid, like most of Wall Street, it misses the big picture by focusing on microscopic quarterly reports.  AT&T is overvalued, but our sell rating is based on the poor enterprise model findings, which often takes several quarters (at least) to materialize. 

AT&T will get some operational benefits from the acquisition as it can now spend on upgrades and operations without needing to account for it as a basic operational costs--it gets billed to the acquisition costs, of course.  This is not a new game in the corporate acquisition world, and often affords the only time a company can spend without hitting the operational cost line item that investors notice.  But, we find AT&Ts growth strategy, or lack thereof, to be of little fundamental support going forward.

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