AT&T Stock Rises on Q3 Earnings Beat, Guidance

AT&T (T) stock is trending up in today’s trading session. The stock has risen over 5% as of 9:52 AM ET after the company’s release of its upbeat third-quarter earnings results. The stock was also up in the premarket trading session.

The leading US mobile carrier managed to beat Wall Street’s earnings expectations but missed revenue estimates in the quarter. Meanwhile, the company added more postpaid phone customers than expected, which boosted investors’ confidence. AT&T has also announced a three-year capital allocation plan, which will restructure its balance sheet. We believe capital allocation will boost its cash flows and earnings.

AT&T stock was up 0.24% on October 25 and closed the trading session at $36.91. On a YTD (year-to-date) basis on October 25, AT&T stock was up 37.5% compared to its telecommunications peers Sprint (S) and T-Mobile (TMUS), which were up 9.6% and 28.3% YTD, respectively.

AT&T’s earnings and revenue

AT&T’s total revenue of $44.6 billion lagged analysts’ estimate of $44.9 billion. Its revenue also fell 2.4% YoY (year-over-year) in the third quarter. Its third-quarter revenue was also lower than in the preceding quarter. The company reported a YoY fall after four consecutive quarters of revenue growth.

The YoY fall in the company’s revenue was the result of soft trends in its legacy wireline services and lower revenue from WarnerMedia. The company also expected pay-TV and streaming video customer losses in the third quarter. However, its focus on growing its strategic and managed business services partly offset this revenue fall. AT&T also saw revenue growth in the domestic wireless services and IP broadband segments in the quarter.

AT&T posted adjusted EPS of $0.94, up 4.4% YoY, in the third quarter. Its earnings grew on lower operating expenses, which led to higher operating income. Its adjusted EPS were also higher than analysts’ estimate of $0.93.

AT&T also gained 101,000 postpaid phone customers in the third quarter. Wall Street had expected only 61,000 postpaid phone additions in the quarter. Analysts expect the company’s sales and adjusted EPS to be $182.2 billion and $3.56, respectively, in 2019.

The company expects its revenue to rise 1%–2% YoY in 2020. It also expects its full-year earnings growth to be $3.60–$3.70 per share.

AT&T’s video losses were higher than expected

As per the company’s expectations, it again disappointed by reporting losses of 1.16 million Premium TV customers in the third quarter. Its third-quarter video losses were more than its net losses of 778,000 in the second quarter and 544,000 in the first quarter. Its Premium TV segment consists of its DIRECTV and U-verse TV subscribers. It also lost 195,000 AT&T TV subscribers in the third quarter. In total, AT&T lost a total of about 1.36 million in the period. Its video subscriber losses were significantly wider than the 297,000 net subscribers it lost in the previous year’s quarter.

At the end of the third quarter, AT&T had 21.6 million total video customers, including 1.1 million AT&T TV NOW subscribers. In the previous year’s quarter, AT&T’s video customers totaled 25.2 million.

Capital allocation plan

During the quarter, AT&T provided a capital allocation plan for the next three years. The capital allocation program came after activist investor Elliott Management brought up concerns. Elliot had urged the company to focus on its core business. Under its three-year plan, AT&T could sell off its noncore assets to reduce its debt. The company also has plans not to make any significant acquisitions and instead focus on driving its margins and earnings. AT&T also plans to continue its dividend and expects to buy back shares, which should further boost its profits.

Analysts’ recommendations on AT&T stock

Most analysts maintain “buys” on AT&T stock. Among the 29 analysts that follow the stock, 14 give it “buy” ratings, and 14 give it “hold” ratings. Only one analyst calls it a “sell.” On average, analysts have given the stock a 12-month target price of $36.50, which implies a discount of 1.1% from its closing price of $36.91 on October 25. Its average median price was $38.00 on the day.