Why Financial Pros Are Rethinking Their Position on AT&T - InvestingChannel

Why Financial Pros Are Rethinking Their Position on AT&T

Proprietary Data Insights

Financial Pros’ Top Telecom Stock Searches in the Last Month

Rank Name Searches
#1 Verizon 108
#2 AT&T 61
#3 T-Mobile 13
#4 Vodafone 9
#5 Consolidated Communications Holdings 7
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Why Financial Pros Are Rethinking Their Position on AT&T

At the end of July, we ranked Verizon (VZ) 8/10, highlighting its hefty dividend yield and monster cash flow.

Shares are up roughly 10%, excluding dividends – not too shabby for a slow moving telecom.

Yet, we’ve always kept our eye on AT&T (T), which has done slightly better.

And recently, it’s seen an uptick in total searches as well as unique user views in the past month by financial pros according to our Trackstar Data.

That means not only is there more interest, but more people interested as well.

AT&T has taken it on the chin with interest rates as high as they are.

But as the Fed pauses its hike regime, now may be the time to start looking at this once Wall Street darling.

AT&T’s Business

The last several years have been a whirlwind for AT&T.

Primarily known for its telecommunications network, the company invested in Warner Media in 2018 only to divest from the same business in 2021, a year after it ejected DirecTV.

The company narrowed its focus to telecommunications, cutting its dividend and plowing more into building its 5G network.

It’s reporting segments narrowed to mobility, business wireline, and consumer wireline, with Latin America as a small percentage:


Source: AT&T Q3 2023 Investor Relations

While mobility has been a bright spot, AT&T has struggled to increase revenues in its legacy business wireline services as consumer wireline remained flat.

The pandemic also pushed people away from traditional office work, further pressuring the business wireline segment which includes fiber hookups.


Source: AT&T Q3 2023 Investor Relations




Source: Stock Analysis

Excluding AT&T’s media acquisition and divestiture, revenues have fallen every year since 2016.

While gross margins improved over that same period, operating and profit margins fell, even as free cash flow margins improved.

It’s led to a mixed picture for the company.

The company carries $126.3 billion in long-term debt, which is down from a high of $150 billion. And with over $30 billion in cash each year, AT&T has plenty of money to cover its $20 billion annual Capex, roughly $8 billion in dividends, and still pay down its debt.

Yet, the growth problem is going to catch up with them eventually,



Source: Seeking Alpha

AT&T trades at what we’d call an extreme discount – just 3.1x operating cash flow and 6.5x earnings.

However, Verizon doesn’t have the growth problem AT&T does and trades at a slightly higher multiple.

In our mind, it’s a no brainer which to pick here.



Source: Seeking Alpha

You might expect T-Mobile (TMUS) to have much higher growth metrics given its valuation.

However, its forward revenue outlook is below Verizon’s. And other peers like Vodafone (VOD) and Consol Comm. Holdings (CNSL) aren’t expecting improvements either.

So, it looks like the entire industry is setting up for a slog.



Source: Seeking Alpha

While AT&T might not have any growth, it is one of the more profitable telecom companies as measured by gross and EBIT margins.

Much of its net income declines come from asset writedowns rather than actual performance related declines.

That’s why its free-cash-flow margin is on par with many of its peers.

Our Opinion 5/10

We almost gave AT&T a 6/10. However, we have no idea when the revenue declines will finally subside.

Will they need to see their entire wireline division evaporate?

We can’t say for certain.

But, given Verizon’s measurably better growth and similar profitability and valuation metrics, we’d rather own the VZ ticker.

And don’t worry. If the Fed starts to cut rates, all these stocks are going to get a boost.

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