Telecom giant AT&T Inc.’s (T) third-quarter results showed strong and sustained momentum in customer additions across its growing 5G wireless and fiber networks. The company beat the consensus EPS estimate by 10.4% and the revenue estimate by 0.6%. Moreover, T added a net of 708,000 postpaid phone customers in the quarter, its ninth consecutive quarter of postpaid customer gains.
John Stankey, CEO of the company, 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.”
At the UBS Global TMT Conference, Jeff McElfresh, the chief operating officer, reiterated that AT&T continues to take a disciplined and return-focused approach to growth and investment.
The company remains focused on building a sustainable and durable connectivity operation with improved cash generation and continues to be pleased with the return profile of its fiber and 5G investments.
Moreover, its forward annual dividend of $1.11 per share yields an attractive 5.75% at the current price. Its four-year average yield is 5.38%. T has an excellent record of 38 years of consecutive dividend payments.
The stock has gained 14.4% over the past three months, closing its last trading session at 19.44. It has a 24-month beta of 0.50 and a 60-month beta of 0.72.
Here’s what could influence T’s performance in the upcoming months:
Solid Financials
For its fiscal 2022 third quarter ended September 30, 2022, T’s total operating expenses declined 4.2% year-over-year to $24.03 billion. The company’s adjusted EBITDA increased 4.7% year-over-year to $10.71 billion, while its adjusted operating margin came in at 35.7%, compared to 34.5% in the year-ago period.
Moreover, its income from continuing operations increased 26% year-over-year to $6.3 billion. As a result, the company’s adjusted EPS grew 3% year-over-year to $0.68.
Discounted Valuation
In terms of forward non-GAAP P/E, T is trading at 7.40x, which is 49.4% lower than the 14.62x industry average. Its forward Price/Book of 1.07x is 43.3% lower than the 1.90x industry average. Also, the stock’s forward EV/EBITDA of 7.48% is 8.7% lower than the 8.19x industry average.
Additionally, its forward Price/Cash Flow ratio of 3.85 is 56.3% lower than the industry average of 8.81.
High Profitability
T’s trailing-12-month EBITDA margin of 34.13% is 89.63% higher than the industry average of 18.00%. Its trailing-12-month gross profit margin of 54.35% is 8.02% higher than the industry average of 50.32%. Also, the stock’s trailing-12-month levered FCF margin of 14.92% is 86.66% lower than the 8.00% industry average.
Additionally, T’s trailing-12-month ROCE, ROTC, and ROTA of 12.23%, 5.98%, and 4.70% are higher as compared to the respective industry averages of 6.14%, 4.11%, and 2.23%.
Consensus Rating and Price Target Indicate Potential Upside
Among the 13 Wall Street analysts that rated T, six rated it Buy, while eight rated it Hold. The 12-month median price target of $20.20 indicates a 4.7% potential upside from yesterday’s $19.30 closing price. The price targets range from a low of $17.00 to a high of $24.00
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 considering 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’s B grade in Quality is in sync with its high profitability. It has a B grade for Value, consistent with its lower-than-industry valuation multiples.
T is ranked #5 among the 19 stocks in the Telecom – Domestic industry.
Click here to access T’s Growth, Momentum, and Stability ratings.
Bottom Line
T is witnessing solid growth with its 5G investments. Moreover, despite the market uncertainties, it is trading above its 50-day and 200-day moving averages of $17.55 and $18.55, respectively, indicating an uptrend.
Given its discounted valuation, higher-than-industry profitability, high dividend yield, and strong financials, T could be an ideal investment.
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 an A (Strong Buy) or B (Buy) rating: Spok Holdings, Inc. (SPOK), Ooma, Inc. (OOMA), and Verizon Communications Inc. (VZ).
T shares were trading at $19.21 per share on Thursday afternoon, down $0.09 (-0.47%). Year-to-date, T has gained 10.45%, versus a -15.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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