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Dipanjan Banchur

AT&T Stock Has Become Way Too Cheap to Ignore

Shares of telecommunications giant AT&T Inc. (T) have gained 11% in price over the past month, as the company’s earnings and revenue beat analysts’ estimates in the last reported quarter.

T’s EPS beat analyst estimates by 10.4%, while its revenue came 0.6% above the consensus estimate. The company’s revenue declined on a year-over-year basis, but the decline can be attributed to the divestments of WarnerMedia and DirecTV.

After 1.5 billion postpaid phone additions during the first half of the year, T added 708,000 postpaid wireless phone subscribers in the third quarter, higher than the estimate. The postpaid phone churn came in at 0.84% for the last quarter. In addition, its 338,000 fiber broadband subscribers beat estimates of 330,000.

Despite the better-than-expected results, the stock is currently trading at a discount to its peers. In terms of forward non-GAAP P/E, T's 6.84x is 50.5% lower than the 13.81x industry average. Its forward P/S of 1x is 15% lower than the 1.18x industry average. Also, the stock's 6.99x trailing-12-month EV/EBITDA is 7.8% lower than the 7.58x industry average.

T’s CEO John Stankey said, “Our results show our strategy is resonating with customers as we continue to see robust levels of postpaid phone net adds and approach 1 million AT&T Fiber net adds for the year.”

“Our disciplined go-to-market approach is helping drive healthy subscriber growth with high-quality customers. As a result, we now expect to achieve wireless service revenue growth in the upper end of the 4.5% to 5% range. We remain confident in our ability to achieve, or surpass, all our financial commitments for the year, while still investing to bring our customers the industry’s best services,” he added.

Raymond James analyst Frank Louthan has upgraded T from Outperform to Strong Buy, with a target price of $24. He said, “We believe the AT&T story is simplifying, which will further attract investors. Additionally, we believe simple recurring revenue names with solid dividends like AT&T are better performers in a difficult tape, and with macro issues impacting the market, we believe the company can outperform.”

The analyst also noted that telecommunications stocks tend to perform worse than expected in an economic downturn. Most of that risk is already embedded in T’s stock price as its shares are trading below their 2-year, 5-year, and 10-year average P/E multiples, even though the company is now free from the cyclicality element in its business with better earnings growth than its peers.

Louthan believes T has better wireless subscriber growth, EPS growth, and margin expansion outlook than its peers. “We believe AT&T can continue to outperform Verizon for the next few quarters,” he added.

T’s forward annual dividend of $1.11 per share yields an attractive 6.27% at the current price.

The stock has declined 4.8% in price year-to-date and 8.6% over the past year to close the last trading session at $17.69.

Here’s what could influence T’s performance in the upcoming months:

Mixed Financials

T’s total operating revenues declined 4.1% year-over-year to $30.04 billion for the third quarter ended September 30, 2022. The company’s total operating expenses declined 4.2% year-over-year to $24.03 billion.

Its adjusted operating margin came in at 35.7%, compared to 34.5% in the year-ago period. Also, its adjusted EPS increased 3% year-over-year to $0.68.

Weak Analyst Estimates

Analysts expect T’s EPS for fiscal 2022 and 2023 to decline 23.9% and 0.9% year-over-year to $2.59 and $2.56, respectively. Its revenue for fiscal 2022 and 2023 is expected to decline 25.6% and 2.2% year-over-year to $125.57 billion and $122.81 billion, respectively.

High Profitability

In terms of trailing-12-month EBIT margin, T’s 21.28% is 130.9% higher than the 9.21% industry average. Likewise, its 34.10% trailing-12-month EBITDA margin is 83% higher than the industry average of 18.63%. Furthermore, the stock’s 12.90% trailing-12-month net income margin is 130.3% higher than the industry average of 5.60%.

POWR Ratings Show Promise

T has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. T has a B grade for Value, in sync with its discounted valuation.

It has a B grade for Quality, consistent with its high profitability.

T is ranked #3 out of 20 stocks in the Telecom – Domestic industry. Click here to access T’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

Despite the challenging macroeconomic environment, T reported strong growth in postpaid wireless phone customers and fiber broadband subscribers. With its divestments now complete, analysts believe that T’s growth will attract investors as the cyclical elements of the business are no longer present.

Moreover, the stock is trading at a discounted valuation to its peers. Given its high profitability, strong growth prospects, and attractive dividend yield, it could be wise to buy the stock now.

How Does AT&T Inc. (T) Stack Up Against its Peers?

T has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Telecom – Domestic industry with a B (Buy) rating: Ooma, Inc. (OOMA), Spok Holdings, Inc. (SPOK), and Verizon Communications Inc. (VZ).


T shares were trading at $18.08 per share on Wednesday morning, up $0.39 (+2.20%). Year-to-date, T has gained 3.95%, versus a -18.14% rise in the benchmark S&P 500 index during the same period.



About the Author: Dipanjan Banchur


Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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