AT&T (T) was incorporated in 1983, and it provides digital entertainment and communication services in Latin America, the United States, and Mexico. The company is headquartered in Dallas, Texas, and its unique selling proposition is that it’s one of the oldest service providers of fixed telephony services.
As of 2022, the company is worth approximately $266 billion and has close to 182.56 million subscribers. It has an average revenue of around $170 billion dollars, and it ranks first in terms of customers served.
I am neutral on AT&T as it trades roughly in line with its historical valuation multiples, its price target implies decent upside, and Wall Street analysts are generally bullish on it. That said, its track record is pretty weak, and the company is planning to cut its dividend this year, which could serve as headwinds for the stock.
Strengths
On the global scale, AT&T is the largest telecommunications company which has helped it stamp its authority. As a result, the company can easily venture into budding markets and take necessary measures to establish itself as the leader.
For instance, in 2015, the company spent $50 billion to buy DIRECTV, which made it one of the largest subscription providers for TVs. On the fortune 500 companies list, it ranks on 11 and has the 14th strongest brand name in the world. Its four key business segments are Xandr, Communications, Latin America, and WarnerMedia.
Recent Results
In the third quarter of 2021, AT&T reported revenue of $39.9 billion, while in the same quarter last year, they reported revenue of $42.3 billion. AT&T’s adjusted EPS for the third quarter stood at $0.87, while the same value stood at $0.76 last year.
The company has seen a $1.7 billion year-on-year increase in cash paid for content, and its revenue for mobility has gone up by 7%, too (from $17.9 billion to $19.1 billion). T also reported that it was able to have a good quarter because of stringent mobility and growth in WarnerMedia.
Valuation Metrics
T stock looks reasonably valued right now as its forward enterprise-value-to-EBITDA and forward price-to-normalized-earnings ratios are close to historical averages at 7.7x and 8.6x, respectively. The historical averages are 7.1x and 10x, respectively. Meanwhile, in 2022 analysts expect the company to shrink revenues by 6.2%, EBITDA by 0.5%, and normalized earnings per share by 4.5%.
Wall Street’s Take
According to Wall Street analysts, T stock earns a Moderate Buy consensus rating based on five Buy ratings and four Hold ratings assigned in the past three months. Additionally, the average AT&T price target of $29.27 puts the upside potential at 9.5%.
Summary and Conclusions
T stock has been a staple dividend stock for a long period as it has steadily increased its quarterly payout over the decades. However, its foolhardy and overleveraged acquisition spree has finally come home to roost.
Management has announced that it will be cutting its dividend this year to free up additional capital for deleveraging and investing in returning the company to growth. It is also planning to spin off its media assets for a merger with Discovery (DISCA).
Meanwhile, Wall Street analysts are generally bullish on the stock here with an average price target that implies decent upside over the next year, while the valuation multiples imply the company is trading roughly in line with its fair value.
As a result, while it does not look like an overvalued stock here, investors might want to wait for a wider margin of safety before opening a position here.
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