AT&T’s cash flows

AT&T (T) posted free cash flow of $22.4 billion in 2018, an increase of 36% from its 2017 level. Its cash flow from operations also increased 14.7% YoY (year-over-year) to $43.6 billion.

AT&T expects its free cash flow to increase ~16.1% YoY (year-over-year) to $26 billion in 2019.

Raymond James Believes in AT&T’s Deleveraging Story

AT&T is focusing on lowering its debt levels 

AT&T had total debt of $176.5 billion at the end of 2018, which increased after the company acquired Time Warner in mid-June for $85.4 billion. In comparison, the net debt of AT&T’s wireless rivals Verizon (VZ), Sprint (S), and T-Mobile (TMUS) were $110.3 billion, $37.5 billion, and $26.3 billion, respectively, at the end of 2018. In the fourth quarter, the company paid off ~$9 billion in debt.

Meanwhile, the company has prioritized deleveraging its business using its free cash flow. To lower its debt load, the company has also stopped offering promotional discounts for phone and TV plans. As reported by Raymond James to its clients, “The outlook for positive earnings growth combined with a strong de-levering story are likely to drive the shares to outperform.”

In 2019, the company plans to utilize its free cash flow of $12 billion (after paying out dividends) for the repayment of debt. As a result, its net debt-to-adjusted EBITDA ratio is expected to reach ~2.6x in 2019. Its debt-to-EBITDA was 2.8x in 2018. In November, the company said that it expected a debt reduction of ~$18 billion–$20 billion in 2019.

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