AT&T (NYSE:T) is unloved on Wall Street, but that could change very soon. Be ready for what could be a blockbuster third-quarter earnings report on October 20th, as moderate expectations may lead to a positive surprise. For the long-term, I am bullish on AT&T stock.
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AT&T is a giant in the U.S. telecommunications space. The company offers telephone, internet, media, and other services. Previous generations considered AT&T stock a safety stock, but it’s been a rough ride for investors in 2022 so far.
AT&T’s greatest challenges this year have been persistently high inflation, general stock market weakness, and strong competition among telecom businesses. These factors have prompted some investors to dump their AT&T shares in haste, but that’s a clear violation of the “buy low, sell high” rule. It’s possible that October 20 will be the catalyst that sparks a turnaround to the upside – and the sellers will regret throwing in the towel when they should have been adding their positions.
AT&T Stock’s Q3 Decline Could Lead to a Relief Rally
When pessimism is at its peak, that’s the time for investors to make their move. AT&T’s stock’s performance in Q3 left shareholders deeply disappointed. However, that’s exactly why the company’s third-quarter earnings results are likely to catalyze a powerful relief rally.
If you can believe it, AT&T stock dropped 26.8% during the third quarter of 2022. For a low-beta safety stock, that’s a horrible quarterly performance – the worst since September 2002, in fact.
There are a number of reasons for this. Amir Rozwadowski, AT&T’s investor relations chief, acknowledged problems with the current economic environment. “Customers are taking a bit more time to pay us,” Rozwadowski observed.
This issue was evidently reflected in AT&T’s second-quarter results. In particular, the company’s Q2 revenue fell to $29.6 billion from $35.7 billion in the year-earlier quarter. Furthermore, AT&T’s business wireline revenue declined to $5.60 billion from $6.05 billion in the prior-year period; this is significant as business wireline revenue accounts for roughly 20% of total revenue.
In addition, AT&T reported second-quarter 2022 adjusted earnings of $0.65 per share, down from $0.67 per share in the year-ago quarter. Also, the company lowered its full-year 2022 free cash flow outlook from around $16 billion to approximately $14 billion. Hence, hardly anyone is expecting much growth, if any at all, from AT&T in the company’s upcoming quarterly report.
AT&T Stock Has Become Too Cheap to Ignore
Just recently, Cowen & Co. analyst Gregory Williams stated that AT&T stock has been “bleeding ever since” the company lowered its free cash flow projection. After so much bloodletting, however, there’s an irresistible opportunity for value hunters to pick up some ultra-cheap AT&T shares.
How cheap has the stock gotten after all that bleeding? AT&T stock has declined from its 52-week high of $21.53 to just $15 and change. The company’s trailing 12-month price-to-earnings (P/E) ratio is a stupendously low 6.77x. If that’s not a bargain, what would be?
Looking ahead to October 20, when AT&T issues its third-quarter earnings results, Cowen’s Williams suggested that investors will be looking for signs of “consistent execution.” To that end, AT&T certainly can’t control the challenging macroeconomic environment, but it can hopefully deliver quarterly results that beat analysts’ estimates.
What exactly are those estimates? For Q3 2022, analysts expect AT&T to post $29.84 billion in revenue. This would represent a significant decline compared to the year-earlier quarter’s result of $39.9 billion in revenue.
Turning to the bottom line, analysts are bracing for AT&T to report adjusted earnings per share of $0.61. Again, we’re witnessing reduced expectations as AT&T recorded adjusted earnings of $0.66 per share in 2021’s third quarter.
Granted, AT&T is a smaller company since last year, as it has divested parts of its business. Nevertheless, the analysts’ revenue and profit expectations for AT&T appear to be quite attainable.
By the way, there’s an added bonus for AT&T’s investors that you won’t see with every company. Income-focused investors should be glad to learn that AT&T pays a forward annual dividend yield of 7.4%. It’s usually a good sign when a business chooses to honor and reward its loyal shareholders with generous dividend payments. AT&T’s dividend yield is high but not so high that it should arouse concern about whether the company can afford to pay it.
What is the Target Price for T Stock?
Turning to Wall Street, T stock has a Moderate Buy consensus rating based on six Buys and eight Holds assigned in the past three months. The average AT&T price target is $21.07, implying 37.7% upside potential.
Conclusion: Should You Consider AT&T Stock?
After disappointing second-quarter results and a terrible share-price drop in Q3, investors and analysts aren’t expecting much from AT&T. As a result, the bar has been set low and it should be easy for AT&T to clear that bar. So, feel free to set an alert – or even an alarm – for October 20 on your calendar as an earnings beat could be in store. Plus, value seekers and dividend collectors should consider holding at least a few AT&T shares for the long haul.
