AT&T’s Q3 results
AT&T reported revenues of $44.6 billion in the third quarter, which implied a 2.5% fall on a YoY basis. However, the company’s revenues were much lower than analysts’ expectations. In the third quarter, AT&T’s revenues were approximately $407 million lower than expected. In the third quarter of 2018, the company reported revenues of $45.7 billion. AT&T reported revenues of $45.0 billion in the second quarter.
However, investors ignored AT&T’s third-quarter revenue miss. The company revealed that it was collaborating with hedge fund Elliott Management to increase shareholder value.
During the company’s third-quarter earnings conference call, Randall Stephenson, AT&T’s chair and CEO, said, “As we move forward in the coming months, the Board and I look forward to continuing our close collaboration with Elliott on strategy, operational initiatives in our portfolio and to see through the value-enhancing steps that I’ve laid out today.”
Elliott Management’s stake in AT&T
In September, Elliott Management revealed that it owns a $3.2 billion stake in AT&T. Elliott Management wrote a letter to AT&T’s board of directors. The letter outlined a four-step restructuring plan that could lift AT&T’s stock prices by about 65% in two years.
Stephenson also disclosed the company’s three-year capital allocation plan. The plan includes a strategy for share buybacks, dividend growth, asset sales, and reducing the high debt level. As of September 30, AT&T’s total debt was $165.2 billion compared to $176.5 billion as of December 31, 2018. The company is on track to reduce its leverage to 2.5x by December 31.
In the third quarter, AT&T gained 3.7 million net wireless subscribers in the US. The company gained 101,000 postpaid phone net customers in the third quarter compared to 67,000 net additions in the third quarter of 2018. Analysts expected the company to gain 60,000 postpaid phone net customers. AT&T also added 227,000 prepaid net customers in the third quarter. The company posted a postpaid phone churn rate of 0.95% in the third quarter compared to 0.93% in the third quarter of 2018.
AT&T reported a net loss of 1.2 million traditional pay-TV customers—more than 346,000 net losses in the third quarter of 2018. The company also lost a net 195,000 over-the-top customers.
T-Mobile (TMUS) released its third-quarter earnings results on Monday. The company reported an adjusted EPS of $1.01 in the third quarter, which was 8.6% higher than the adjusted EPS of $0.93 in the third quarter of 2018. Analysts expected T-Mobile to post an adjusted EPS of $0.96 for the third quarter. T-Mobile reported revenue growth in the third quarter. The company’s revenues rose 2.0% YoY to $11.1 billion, which missed analysts’ consensus estimate of $11.3 billion. The company added 754,000 postpaid phone net customers.
Sprint (S) will likely report its earnings results for the September quarter by the end of this month. Analysts expect Sprint to post an adjusted EPS of -$0.02 on total revenues of $8.17 billion.
Ratings and target price
After AT&T’s third-quarter earnings release, Cowen and Company raised its target price on the stock to $41 from $40. Credit Suisse also raised its target price on the stock to $36 from $29.
Among the 29 analysts covering AT&T stock, 14 recommend a “hold,” 14 recommend a “buy,” and one recommends a “sell.” Analysts’ mean target price on AT&T stock is $37.81, which implies a 1.8% downside potential. Most analysts covering T-Mobile recommend a “buy.”
This year, AT&T stock has performed better than the major US indexes. While AT&T has gained 34.9%, the Dow Jones Industrial Average and the S&P 500 have risen 16.1% and 21.1%, respectively, year-to-date. In comparison, T-Mobile and Sprint have gained 29.5% and 8.6%, respectively.
AT&T stock offers a dividend yield of 5.3% as of Monday.