AT&T Stock Downgraded Amid Concerns Over Margin Pressure from iPhone Upgrades.

Barclays downgraded AT&T stock to Equal Weight from Overweight, citing concerns about increased phone upgrades pressuring margins. The analyst reiterated a $30 price target. The move comes as AT&T offers free iPhones to new and existing customers, which could drive more phone upgrades and negatively impact the company's profitability.

Barclays downgraded AT&T stock to Equal Weight from Overweight on Wednesday, citing concerns about increased phone upgrades potentially pressuring the company's margins. The analyst, Kannan Venkateshwar, reiterated his $30 price target on the stock. The move comes as AT&T continues to offer free iPhones to new and existing customers, which could drive more phone upgrades and negatively impact the company's profitability.

Venkateshwar noted that elevated churn and upgrade rates are likely to put pressure on AT&T's margins. This is due to the increasing durability of devices and higher prices for new models, which have historically led to less frequent upgrades. However, recent developments, such as new software features with artificial intelligence (AI) capabilities, are incentivizing upgrades. Apple's latest iPhone lineup and the upcoming foldable iPhone are expected to further drive this trend.

The analyst is concerned that if operators continue with their present buyout promotions and if upgrade rates step up further due to new form factors, the pressure on operator free cash flow and margins could be material. AT&T declined to comment on the downgrade from Barclays.

Despite the downgrade, AT&T shares have risen 21% this year. The stock is now trading at 13 times earnings expected over the next 12 months, which is above its five-year average of 8.7 times forward earnings. Verizon Communications currently trades at 9.1 times forward earnings, while T-Mobile US trades at 19.9 times.