Customer relationships have been at the core of AT&T’s (T) business strategy recently, according to its CEO.
“We continue to execute well in growing customer relationships, and we’re on track to meet our guidance for the year,” said John Stankey, AT&T’s CEO. “We had our best postpaid phone net add quarter in more than 10 years, our fiber broadband net adds increased sequentially, and HBO Max global subscribers neared 70 million. We also have clear line of sight on reaching the halfway mark by the end of the year of our $6 billion cost-savings goal.”
Stankey’s statement follows the release of the company’s third-quarter earnings, which beat analyst estimates. Yet it missed on revenues, as these relationships have yet to translate into a higher top line for the telecommunications giant.
One explanation for the revenues miss could be the wave of promotional plans offered by the company and its peers to lure subscribers to the 5G network.
Then there’s the company’s large size, which makes sizable growth numbers hard to achieve.
But AT&T’s revenue problem isn’t new. It can be traced back to 2008, when the company entered a period of anemic growth, with most years seeing virtually no change.
Apparently, growing customer relations weren’t enough to place the company onto a sustainable growth path. I am neutral on AT&T stock.
See AT&T stock charts on TipRanks >>
Falling Margins
While revenue growth is an old problem for the telecommunications giant, there’s a new problem: compressed margins in the last couple of years. Operating margins have dropped from 12.90% in 2018 to 3.59% in 2021, while net margins have plunged from 20.40% to -1.23% over said period.
Simply put, AT&T has been unable to monetize its customer relations in the last three years.
Wall Street’s Take
Wall Street has taken notice of these problems. As a result, AT&T’s shares have underperformed its peer group by a considerable margin. Over the last twelve months, its shares have lost 3.03%, compared to the 13.24% gain of the telecom industry, even after its 8% dividend is taken into consideration. Additionally, it has been a poor performer over the last decade, with its share gaining a meager average annual return of 4.64%.
The TipRanks Smart Score system assigns the company a 7, citing poor fundamentals and technicals, very negative Investor sentiment, and decreased Hedge Fund activity.
Analysts’ Take
The 13 Wall Street analysts following the stock in the last three months do not seem to share Wall Street’s pessimism. On the contrary, they rate AT&T’s stock a Moderate Buy and have an average price target of $31.44 for the next 12 months, with a high forecast of $37.00 and a low forecast of $26.00.
The average AT&T price target represents a 23.34% change from the last price of $25.49. That would make an excellent return, on top of the 8 percent dividend payout.
Bottom Line
Growing customer relations is not enough to place the company on a sustainable growth path and please Wall Street, unless it is followed by sufficient growth in revenues and profit margins. Those are things that AT&T has yet to achieve.
Disclosure: At the time of publication, Panos Mourdoukoutas didn’t own any shares of AT&T.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
