Shares of AT&T have moved mostly sideways since it spun off its media operations in April 2022. However, it continues to improve its wireless and Internet networks, which should spur subscriber growth and support its current dividend rate.
The stock trades at just 7.0 times the company’s 2023 earnings forecast.
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AT&T INC. (New York symbol T; www.att.com) is the largest wireless carrier in the U.S., with 217.4 million subscribers. It also has 4.3 million traditional phone customers and 14.0 million high-speed Internet users. As well, AT&T sells wireless and satellite TV services to 21.6 million users in Mexico and Latin America.
In June 2018, AT&T acquired media giant Time Warner (later renamed WarnerMedia) for $103 billion in cash and stock. It felt that exclusive content would attract more users to its telecom services.
However, the purchase failed to live up to expectations. As a result, in April 2022, AT&T merged WarnerMedia with Discovery Inc. to form Warner Bros. Discovery (Nasdaq symbol WBD). AT&T shareholders now own 71% of the new firm. The company also received $40.4 billion in cash as part of the deal.
AT&T’s revenue rose 6.1% after the acquisition, from $170.76 billion in 2018 to $181.19 billion in 2019. Revenue then fell 5.2% to $171.76 billion in 2020 as COVID-19 shutdowns hurt wireless roaming revenue and demand for advertising at WarnerMedia. Revenue declined another 1.7% to $168.86 billion in 2021 as businesses spent less on new equipment and services.
Due to the spinoff, AT&T’s revenue in 2022 dropped another 28.5%, to $120.74 billion.
Writedowns and other charges cut earnings by 28.2%, from $19.37 billion in 2018 to $13.90 billion in 2019; due to the extra shares outstanding, per-share earnings fell 33.7%, from $2.85 to $1.89. The company then lost $0.75 a share (or a total of $5.37 billion) in 2020, but earnings recovered to $2.76 a share (or $19.87 billion) in 2021. Due to more writedowns, AT&T lost $1.13 a share (or $8.73 billion) in 2022.
If you factor out unusual items, earnings per share improved 6.6%, from $2.41 in 2021 to $2.57 in 2022.
Value Stocks: 5G networks will be a new growth area for AT&T
Now that the company has completed the spinoff, it will focus on expanding its ultrafast 5G wireless and fibre-optic Internet networks. AT&T plans to earmark $24 billion for upgrades to its networks in 2023, roughly the same sum it spent in 2022. Savings from a restructuring plan will help offset those outlays. AT&T expects the plan will cut $6 billion from its annual costs by the end of 2023.
The company also expects its free cash flow (regular cash flow less maintenance capital expenditures) will total $16 billion in 2023. That will help it pay down its long-term debt of $128.4 billion, which is a high 105% of its market cap. AT&T also held cash of $3.7 billion.
The telecom will likely earn $2.44 a share in 2023, and the stock trades at a low 7.0 times that estimate. The $1.11 dividend gives you a high 6.5% yield.
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