A pair of sellside telecom analysts is unimpressed by AT&T's rally after its earnings call last Wednesday, and argues that spreads have come in too far. The company's benchmark 10-year issue, the 7.3% notes of '11 tightened from 315 basis points to 265 over the curve shortly after Wednesday's call.
Spreads should retrace those gains at the very least, says Tim Caffrey, analyst at Barclays Capital. "There were a lot of weak quarters, and it's hard to call a turnaround after just one better quarter. A lot of the positive market sentiment appears to be based on a Wall Street Journal article on AT&T being bought by BellSouth. This is not new news," he says.
Doug Colandrea, head of investment-grade research at Bear Stearns, sees little to get excited about in AT&T's earnings. "The bar was set pretty low. They came in above, and now everybody thinks those earnings were good in some bizarre way," he says. He further points out that even with the rally, AT&T spreads were tighter in January, at 250 off the curve. Over the same time frame, the Bear Stearns high grade index is 30 basis points tighter, and most of the other telecom names have tightened significantly more. Sprint's 8.375% notes of '12, for example, have rallied 150 basis points since January.
