Is AT&T Stock a ‘Buy’ before Its Q3 Earnings?

Leading mobile operator AT&T (T) plans to releases its third-quarter earnings on October 28 before the market opens. AT&T stock is up 32.2% year-to-date. Can the company’s third-quarter earnings boost its stock price? Let’s take a look at analysts’ expectations from AT&T’s third-quarter earnings.

AT&T’s third-quarter earnings

Based on analyst consensus estimates, AT&T could report adjusted earnings per share of $0.93 for the third quarter. In the third quarter of 2018, the telecom company reported adjusted EPS of $0.90. Notably, the company has met analysts’ adjusted EPS estimates for the last three quarters.

Based on analyst estimates, AT&T could report total revenues of $45.0 billion in Q3 2019. That represents a 1.6% decrease year-over-year (or YoY). The fall in the top line could be due to expected pay-TV and streaming video customer losses. However, the company is expected to add postpaid customers despite intense competition from T-Mobile (TMUS) and Sprint (S).

Investors should closely monitor AT&T’s performance in its Mobility and Entertainment Group segments. The major fluctuation in the two segments’ financials could have a direct impact on the company’s consolidated results. In AT&T’s Mobility segment, investors should track the company’s postpaid phone customer growth and its churn rate. The investors should also look for updates on the company’s 5G wireless network deployment.

AT&T’s second-quarter performance

AT&T’s adjusted EPS of $0.89 in the second quarter met analysts’ consensus estimate of $0.89. However, the adjusted EPS came in 2.2% lower than its Q2 2018 adjusted EPS of $0.91.

The company posted revenues of $45.0 billion in Q2 2019, 0.2% above the consensus estimate of $44.9 billion. Its Q2 top line grew 15.3% year-over-year. The significant rise was due to the company’s acquisition of the Time Warner assets.

AT&T lost 778,000 traditional pay-TV customers in Q2 2019, versus 262,000 losses in Q2 2018. In the third quarter, the company is expected to lose more than 1 million traditional video customers.

AT&T gained 72,000 postpaid phone net customers in Q2 2019, versus 51,000 net additions in Q2 2018. The company also gained 341,000 prepaid net customers. It reported a postpaid phone churn rate of 0.86% compared to 0.82% in the second quarter of 2018.

Elliott Management’s stake in AT&T

In September, activist investor Elliott Management revealed a $3.2 billion position in AT&T. The hedge fund wrote a letter to AT&T’s board of directors. In the letter, Elliott Management recommended that the wireless carrier shed unnecessary assets like DIRECTV. The hedge fund also criticized the company’s acquisition of media assets like Time Warner.

Elliott Management suggested a four-step restructuring plan to boost the company’s stock price. According to the Wall Street Journal, AT&T and Elliott Management are in talks to resolve issues raised by the investment firm. Please read Will AT&T and Elliott Management Find Common Ground? to learn more.

HBO Max

AT&T’s WarnerMedia segment plans to launch a new over-the-top streaming video service called HBO Max in April 2020. The company has scheduled a special WarnerMedia event on October 29 to provide updates on HBO Max.

Peers’ expectations

T-Mobile plans to release its third-quarter results on October 28. Analysts expect AT&T’s adjusted EPS to rise 3.2% YoY to $0.96. They also expect T-Mobile’s revenue to rise 4.5% YoY to $11.3 billion.

Sprint expects to report its September-quarter results by the end of October. Analysts expect its adjusted EPS to fall YoY to -$0.02 from $0.05. Wall Street also expects Sprint’s revenue to fall 3.1% YoY to $8.2 billion.

Analysts’ recommendations

Analysts have a positive outlook on AT&T stock. Of the 29 analysts covering the telecom stock, 14 gave it a “buy” rating, and 14 gave it a “hold” rating. One analyst recommends a “sell” rating for the stock. Wall Street analysts’ mean 12-month target price for AT&T stock is $36.50. The stock is trading at a premium of 3.3% to its mean target price.

Meanwhile, T-Mobile and Sprint have mean broker target prices of $88.95 and $6.65, respectively. These figures imply returns of 9.3% and 4.1%, respectively, over the next 12 months.

Stock performance

On October 23, AT&T stock fell 1.1% and closed at $37.74 with a market cap of $275.8 billion. The stock is trading 2.6% below its 52-week high of $38.75. The stock is trading 40.8% above its 52-week low of $26.80.

AT&T stock was 0.3% above its 20-day moving average of $37.63, 2.7% above its 50-day moving average of $36.76, and 7.8% above its 100-day moving average of $35.

The stock has generated returns of 14.3% in the trailing 12-month period and 0.4% in the trailing one-month period. Its share price has fallen 0.1% in the trailing five-day period. On October 23, AT&T’s dividend yield was 5.4%.

AT&T’s 14-day relative strength index (or RSI) level was 54. This RSI level indicates that the stock is neither oversold nor overbought.

This year, AT&T stock has outperformed the major US indexes. While AT&T has gained 32.2%, the Dow Jones Industrial Average and the S&P 500 have risen 15.0% and 19.9%, respectively, year-to-date. In comparison, Sprint and T-Mobile have gained 9.8% and 27.9%, respectively.

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