AT&T: Will Its Q3 Earnings Impress Investors?

AT&T (T) plans to post its third-quarter earnings results before the market opens on October 23. The second-largest wireless carrier had an eventful quarter.

Activist investor Elliott Management revealed a $3.2 billion stake in AT&T. The investment firm urged the company to restructure its business by divesting non-core assets such as DIRECTV and focus more on its main telecom operations.

Elliott also asked the company to “undergo a strategic shift away from acquisition and toward execution.” The activist investor criticized AT&T for acquiring Time Warner. In the third quarter, AT&T also announced changes to its leadership team.

What does Wall Street say?

In the third quarter, analysts expect AT&T to post total revenue of $45.1 billion, down 1.4% from $45.74 billion in Q3 2018. Analysts also expect the company’s sales to rise 6.8% YoY (year-over-year) to $182.33 billion in fiscal 2019 and 0.04% YoY to $182.41 billion in fiscal 2020. Its sales are expected to fall 0.45% YoY to $181.59 billion in fiscal 2021.

Comparatively, T-Mobile’s (TMUS) revenue is expected to rise 4.6% YoY to $11.33 billion in the third quarter. Sprint’s (S) revenue is expected to fall 3.0% YoY to $8.18 billion in the September quarter.

In the third quarter, analysts expect AT&T’s earnings per share to grow 3.3% YoY to $0.93. Analysts also expect the company’s adjusted EPS to rise 0.85% YoY to $3.55 in fiscal 2019, 1.97% YoY to $3.62 in fiscal 2020, and 0.28% YoY to $3.63 in fiscal 2021.

In comparison, T-Mobile’s adjusted earnings per share are expected to rise 3.2% YoY to $0.96 in the third quarter. Sprint is expected to report adjusted EPS of -$0.02.

AT&T’s second-quarter performance

In the second quarter, AT&T’s adjusted EPS fell 2.2% YoY to $0.89, which was in line with analysts’ consensus estimate. The company reported consolidated total operating revenue of $44.96 billion, a rise of 15.3% YoY. The significant YoY revenue growth was due to the company’s Time Warner acquisition in June 2018. AT&T’s revenue beats analysts’ consensus estimate by 0.23%.

In the June quarter, AT&T added 3.9 million net wireless customers in the US. The company also gained 72,000 postpaid phone net customers and 341,000 prepaid net customers in the quarter. The company reported a postpaid phone churn rate of 0.86%.

US pay-TV customer losses

In the third quarter, AT&T expects to report traditional video customer losses of about 1.1 million compared to 346,000 net losses in the third quarter of 2018. The significant increase in net video losses is due to intense competition from over-the-top services and carriage disputes with CBS and Nexstar Media Group.

In the second quarter, AT&T lost 778,000 traditional video customers on a net basis. The company’s traditional video customer count fell 8.7% YoY to 21.6 million on June 30.

Comparatively, Charter Communications (CHTR) and Comcast (CMCSA) lost 141,000 and 224,000 total video customers, respectively, in the June quarter. Meanwhile, Netflix (NFLX) added 2.7 million customers worldwide in the quarter.

AT&T’s adjusted EBITDA

In the third quarter, analysts expect AT&T to post adjusted EBITDA of $7.92 billion for AT&T Mobility, its combined domestic wireless operation. This could translate to an adjusted EBITDA margin of about 45% for the quarter—higher than the 42.8% it saw in the third quarter of 2018.

AT&T Mobility’s third-quarter adjusted EBITDA is expected to rise 3.1% YoY from $7.68 billion in the third quarter of 2018. Meanwhile, the company’s consolidated adjusted EBITDA is expected to fall 3.6% YoY to $15.31 billion.

For its Q2 combined domestic wireless operations, AT&T reported adjusted EBITDA of $7.9 billion compared to $7.6 billion in the second quarter of 2018. The company’s adjusted EBITDA margin expanded to 44.9% in the second quarter from 44.1% in the second quarter of 2018.

Analysts’ recommendations

According to data compiled by Thomson Reuters, 28 analysts are covering AT&T stock. About 50% have a “buy” rating, 46.4% have a “hold” rating, and 3.6% have a “sell” rating.

The average target price is $36.52, implying a downside of about 2.6%, based on the stock’s last closing price of $37.48. The target prices for AT&T stock range widely. The lowest target price stands at $20, and the highest target price is $43.

T-Mobile and Sprint are rated as a “buy” by 16 out of 20 and one out of 18 analysts, respectively. T-Mobile and Sprint’s target prices of $88.44 and $6.81 imply an upside of 13.9% and 11.1%, respectively.

Stock performance

AT&T has returned 31.3%, year-to-date. In that same period, its peers T-Mobile and Sprint have returned 22.0% and 5.3%, respectively. On October 8, AT&T stock fell 0.48% and closed the trading day at $37.48. The stock is trading 39.9% above its 52-week low and 3.3% below its 52-week high.

AT&T stock is 4.2%, 9.1%, and 15.4%, respectively, above its 50-day, 100-day, and 200-day moving averages. Its stock is 0.1% below the 20-day moving average.

For the last 14 days, AT&T’s relative strength index score (or RSI) was 57, which shows that investors are neutral on the stock. AT&T’s 14-day MACD (moving average convergence divergence) is 0.09, which denotes that the stock is in an upward trading trend.

On October 8, AT&T’s dividend yield was 5.44%. Telecom peers T-Mobile and Sprint don’t pay equity dividends.

According to an October 9 Reuters report, AT&T “will sell its wireless and wireline operations in Puerto Rico and U.S. Virgin Islands to Liberty Latin America Ltd for $1.95 billion in cash.”

For more on the telecom giant, please read CWA Hits Back at Elliott for Its AT&T Critique and The Rumored Merger of AT&T’s DIRECTV and Dish: False. Also, check out How AT&T Stacks Up amid the Streaming Wars.

Stay tuned to find out how AT&T performed in the third quarter.