AT&T Surprises With 3Q Sales Win; Shares Gain 5%

AT&T reported better-than-feared quarterly sales driven by “solid” wireless and fiber broadband subscriber growth, sending shares up more than 5% in morning trading.

AT&T’s (T) total revenue declined to $42.3 billion in the third quarter from $44.6 billion in the year-ago quarter, but topped the average analyst expectation of $41.59 billion. The COVID-19 pandemic impacted revenues across all businesses, particularly WarnerMedia, which contains HBO, and also domestic wireless service revenues, primarily due to lower international roaming.

In the third quarter ended Sept. 30, adjusted earnings per share fell to 76 cents from 94 cents in the same period last year, but were in line with the Street consensus.

AT&T added 645,000 net new phone subscribers during the reported quarter, while analysts had forecast the company to lose a net 9,000 customers.

The telecom and media giant also updated its guidance and now expects 2020 free cash flow of $26 billion or higher, with a dividend payout ratio in the high 50s%.

“We delivered a solid quarter with good subscriber momentum in our market focus areas of connectivity and software-based entertainment,” said AT&T CEO John Stankey. “Wireless postpaid growth was the strongest that it’s been in years with one million net additions, including 645,000 phones. We continue to grow and scale HBO Max, with total domestic HBO and HBO Max subscribers topping 38 million – well ahead of our expectations for the full year.”

Stankey said that the company added more than 350,000 fiber broadband customers and is on track to grow its fiber base by more than 25% this year.

Shares in AT&T have plunged 28% year-to-date, and the stock scores a cautiously optimistic Moderate Buy Street consensus. That’s with 7 Buy ratings, 4 Hold ratings and 3 Sell ratings. The average analyst price target of $31.20 indicates 11% upside potential lies ahead.

Following the financial results, Oppenheimer analyst Timothy Horan reiterated a Buy rating on the stock with a $38 price target, saying that the shares are attractive and can maintain their 8% dividend yield.

“AT&T reported a solid quarter on strong wireless and wireline demand helped by the pandemic. Video losses are also improving from new services and less churn,” Horan wrote in a note to investors. “Positively, Warner was better than expected with the return of sports/advertising. Management updated FY20 guidance despite major COVID expenses.” (See T stock analysis on TipRanks)

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