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Analyzing AT&T’s Valuation Multiples after the Merger

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Market cap of mobile network providers

On June 12, AT&T (T) received approval by a federal judge to merge with Time Warner (TWX). AT&T’s market cap is ~$210.9 billion, making it the largest US wireless service provider by market cap, followed by Verizon (VZ) with a market cap of ~$201.7 billion. Sprint has a market cap of ~$21.3 billion, and T-Mobile (TMUS) and Charter (CHTR) have market caps of ~$49.2 billion and ~$69.2 billion, respectively.

Valuation metrics for AT&T

Valuation metrics consist of price-based multiples and earnings-based multiples. On June 12, AT&T had a trailing enterprise-value-to-EBITDA multiple of 6.6x. Verizon, Sprint, and T-Mobile had multiples of 7.0x, 4.8x, and 7.3x, respectively. AT&T expects its enterprise-value-to-EBITDA multiple to be 6.4x in 2018 and 6.4x in 2019.

AT&T is now trading at a PE multiple of 20.5x. In 2018, its PE multiple is expected to be 10.1x. In 2019, its multiple is anticipated to be 10.0x. In comparison, peers Verizon and T-Mobile are trading at PE multiples of 14.0x and 25.2x, respectively.

Price movements for AT&T and peers

On June 12, AT&T stock fell 12.1% on a trailing one-year basis. Charter and T-Mobile stock fell 14.1% and 10.2%, respectively. Verizon stock rose 3.4%.

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