AT&T: There's Something You Don't See Every Day

Ronald Martinez

I spot Seeking Alpha arsenic an equilateral triangle pinch 3 perfectly adjacent sides: stocks, authors, and readers. Take distant aliases moreover trim nan value of one, you will beryllium near pinch a disfigure, if not a complete heap of rubbles. Authors constitute astir stocks (predominantly) for nan use of nan readers. In an almost unsocial way, we besides get a bully synergy connected Seeking Alpha erstwhile authors themselves are readers (followers) of different authors who constitute astir a communal favourite stock.

I was caught successful that bully synergy this greeting erstwhile I publication an article from David Alton Clark ("DAC"), 1 of nan fewer authors I follow, connected 1 of my favourite stocks AT&T Inc. (NYSE:T). It took maine a infinitesimal to nexus nan title of DAC's article to its content. Blame it connected a slow Friday morning. Once I sewage nan connection, I instantly had my title fresh to spell from nan aforesaid movie, Ghostbusters. There's thing you don't spot each day.

It is not each time that I spot a waste standing connected AT&T. More specifically, it is not each time that personification pinch much than 100 articles connected AT&T advocates a sell. If you are reasoning this is simply a rebuttal piece, I americium sorry to disappoint you. It is not. Because DAC is perfectly correct erstwhile saying "Let maine opportunity this, everyone's business is different." The truth that he ended up trading should not by and of itself dissuade others to travel suit. This article is my earnest effort to coming a fewer reasons why trading AT&T present whitethorn not beryllium nan correct telephone for everyone. Let america get into nan details.

Stock Valuation

Despite nan bully 30% tally higher successful banal value since October 2022, AT&T's banal is still trading astatine a reasonable valuation pinch a guardant aggregate little than 8. Granted, AT&T is not astir to group nan world connected occurrence pinch its maturation rate, but this tally is backed up by nan truth that nan institution hit its net estimate each of nan preceding 4 quarters, arsenic shown below. Not to forget, nan institution met its ain lofty goals for Free Cash Flow ("FCF") successful nan precocious reported quarter.

ATT Earnings History (Seekingalpha.com)

Seeking Alpha's quant ratings agrees pinch my valuation appraisal arsenic good arsenic nan truth that beardown net coupled pinch on-going costs cutting measures person resulted successful rock-solid profitability. Once again, location is nary mobility that, since being backmost to chiefly being a Telecom player, AT&T's maturation prospects are not excessively bright, but if you are looking for maturation here, you are barking up nan incorrect tree. We will look astatine revisions and momentum successful nan sections below.

ATT SA Ratings (Seekingalpha.com)

Shareholder Trust - Finally

It takes years to build spot but seconds to break it. AT&T did merit to suffer nan spot of its investors pinch their ballooning indebtedness and bad acquisitions, to sanction a few. So, I americium not calling it a triumph yet and I afloat admit these are still early days. But we must observe nan mini wins on our journey. AT&T's caller actions are showing that nan institution yet cares astir its image pinch shareholders. A fewer examples below:

• Despite having much access to in installments (AKA debt), AT&T's guidance has not yet tapped into nan cooky jar yet, arsenic nan indebtedness level has remained dependable since nan spinoff.
• Knock connected wood, nan institution hasn't undertaken immoderate further ridiculous "di-worsification" efforts.
• These positive nan truth that nan institution met its ain lofty free rate travel ("FCF") goals, which was followed closely, is encouraging capable for maine to instrumentality pinch nan stock, particularly if nan output remains supra 5% and nan guardant aggregate remains successful azygous digits.

ATT Debt (YCharts.com)

Business Reality

I salary a batch of attraction to shareholder updates from my largest holdings. AT&T's COO and CFO some precocious provided updates to shareholders that connection plentifulness of insights. Key things that sewage my attraction are nan following:

• The COO's study mentioned nan company's investments complete nan past 2 years is now starring to costs efficiencies. This is having an effect connected nan contiguous bottom-line arsenic good arsenic nan operating leverage (that is, nan expertise to group pricing constituent value profitably).
• The institution expects to usage "cash aft dividends" to trim indebtedness until it reaches its extremity of 2.5x nett debt-to-adjusted EBITDA. Read nan bid again. Cash -> Dividends -> Debt. In simpler words, nan net and free rate travel spot referenced supra and beneath will construe into shareholder payments first earlier being sent towards debt. This is simply a elemental yet magical rhythm arsenic agelong arsenic nan institution does not indulge successful overcompensation and bad acquisitions.
• All these don't mean nan institution is readying to skim connected its maturation plans. It is still connected way to scope its target of 30 cardinal fibre locations by extremity of 2025. This is not a caller extremity from past 4th arsenic it was established almost 2 years agone and nan caller reports show nan execution is connected track.

The Verizon Comparison

While Verizon Communications Inc. (VZ) has a higher output correct now, AT&T has a amended dividend sum based connected Free Cash Flow, arsenic explained below:

• Verizon's full shares outstanding: 4.20 Billion
• Verizon's quarterly dividend per share: 65 cents.
• Quarterly FCF needed to screen dividends: $2.73 Billion
• Verizon's average quarterly FCF Trailing Twelve Months: $2.60 Billion
• Verizon's mean quarterly FCF complete past 5 years: $1.74 Billion
• In different words, Verizon's dividend committedness is good complete its caller free rate flow.

Let's spot really AT&T fares successful comparison.

• AT&T's full shares outstanding: 7.13 Billion
• AT&T's quarterly dividend per share: 27.75 cents
• Quarterly FCF needed to screen dividends: $1.97 Billion
• AT&T's average quarterly FCF Trailing Twelve Months: $3.09 Billion
• AT&T's mean quarterly FCF complete past 5 years: $5.882 Billion. Please statement this whitethorn not beryllium a adjacent comparison arsenic it included rate travel from nan pre-spin disconnected business units arsenic well.
• In different words, AT&T's dividend sum is overmuch stronger than Verizon's utilizing Free Cash Flow.

For those who for illustration payout ratio based connected Earnings Per Share ("EPS"), AT&T has a guardant payout ratio of 45% compared to Verizon's 55%.

Technical and Revision Momentum

This is not arsenic important arsenic nan business and its fundamentals but it does play a domiciled successful nan short to mean term, particularly erstwhile judging introduction points. The truth that nan banal is trading supra nan each important 200-Day moving mean is encouraging. The caller marketplace weakness is apt nan biggest logic for nan banal to beryllium trading beneath its 5- and 20-Day moving averages but they don't matter arsenic overmuch successful expansive strategy of things.

I americium besides comforted by nan truth that nan existent 200-Day mean is very adjacent to nan 6% output mark. With nan existent 30 twelvemonth treasury complaint hovering successful nan mid to higher 3% range, investors do request a higher output to get successful and enactment invested successful debased maturation stocks for illustration AT&T.

Lastly, while AT&T's net estimates person trended down complete nan past 90 days, nan truth that nan existent afloat twelvemonth estimates person fallen by conscionable 5% complete 90 days tells maine nan revisions will beryllium reasonably tight, allowing investors to get a adjacent aggregate easily. For example, utilizing nan existent 2023 EPS estimate of $2.44, AT&T banal is presently trading astatine a aggregate of 7.78. If nan estimate falls by moreover 10% by extremity of nan year, nan guardant aggregate still beryllium astir 8.50. That's tight capable for investors to shape a realistic scope of outcomes.

T Moving Avgs (Barchart.com)

Conclusion

To reiterate, I americium successful statement pinch DAC that everyone's business is different. However, while location possibly reasons to waste AT&T Inc. now aliases anytime, location are besides capable reasons to beryllium cautiously optimistic astir nan stock. I see AT&T Inc. banal a bargain arsenic agelong arsenic nan output hovers adjacent to 6% pinch nan stock's guardant aggregate being little than 10.

AT&T Inc. has shown much subject successful nan post-spinoff months than anytime I tin callback successful nan past 10 years arsenic a shareholder. I understand that AT&T is not a high-growth stock, and I americium perfectly good pinch it. I conscionable dream AT&T Inc. guidance does not erstwhile again effort to make itself and nan institution look cool astatine our expense. Until those signs show up, I americium staying pinch AT&T.

Dividends (DGI and DRIP) and Growth astatine reasonable value (GARP) for Long-term. Serious money.Fun trading for short-term. Play money.Ideas and thoughts presented successful nan articles are not master recommendations.