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AT&T’s 2020 Outlook: 5G and Wireless Are Key Drivers

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Wall Street expects AT&T (T) to report a 0.6% increase in its revenues to $182.6 billion in 2020—compared to the expected $181.5 billion in 2019. The telecom company’s non-core earnings per share are expected to be $3.62 in 2020, compared to the expected $3.56 in 2019.

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AT&T’s outlook for 2020

During AT&T’s third-quarter earnings conference call on October 28, CEO Randall Stephenson offered key insights into the company’s outlook for 2020. Next year, AT&T expects to achieve consolidated revenue growth of 1%–2%, driven by “growth from wireless service revenues and strong equipment revenues from the launch of 5G smartphones.”

In 2020, the telecom giant expects its adjusted EPS to be $3.60–$3.70, which includes its HBO Max investment. This implies low-single-digit adjusted EPS growth.

AT&T expects its free cash flow to be about $28 billion, which is in line with 2019. The telecom company expects gross capital expenditures of approximately $20 billion in 2020.

Next year, the company is targeting a dividend payout ratio in the low 50% range. For 2020, the wireless carrier expects to monetize $5 billion–$10 billion of its non-core assets.

Key takeaways from Q3 2019

In the third quarter, AT&T posted total revenues of $44.6 billion, which implies a YoY (year-over-year) fall of 2.5%. The company’s revenues missed analysts’ estimate of $45.0 billion. AT&T posted adjusted EPS of $0.94, which increased 4.4% YoY and beat analysts’ estimate of $0.93.

The company reported 101,000 postpaid phone customer net additions in the third quarter. AT&T also gained 227,000 prepaid net customers. In Q3 2019, it reported a postpaid phone churn rate of 0.95% versus 0.93% in Q3 2018.

In comparison, T-Mobile’s (TMUS) adjusted EPS rose 8.6% YoY to $1.01 in the third quarter, while Sprint (S) reported net losses. T-Mobile gained 754,000 postpaid phone net customers, while Sprint reported 91,000 net losses.

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Analysts’ ratings

Among the 29 analysts surveyed by Reuters covering AT&T stock, 14 recommend a “buy”—unchanged from last month. Fourteen analysts recommend a “hold”—up from 13 last month. Only one analyst recommends a “sell,” which is unchanged from last month.

Currently, analysts have a 12-month mean target price of $38.29 on AT&T stock. Please read Is AT&T Stock Overbought or Worth a Buy? to learn more about analysts’ ratings.

AT&T’s stock valuation

Currently, AT&T stock is trading at 11.01x its 2019 estimated EPS of $3.56. It’s also trading at 10.84x its 2020 estimated EPS of $3.62. Wall Street expects the telecom company’s adjusted EPS to rise 1.1% in 2019 and 1.7% in 2020. They also expect AT&T’s earnings to rise at a CAGR of 3.8% over the next five years.

On November 6, AT&T rose 0.2% and closed at $39.25. Currently, the stock is trading 0.6% below its 52-week high of $39.50 and 46.5% above its 52-week low of $26.80. AT&T stock has returned more than 37% year-to-date.

On the same day, AT&T stock closed 3.0%, 4.8%, and 10.2% above its 20, 50, and 100-day moving averages of $38.09, $37.45, and $35.62, respectively.

Sprint and T-Mobile’s stock prices rose 5.7% and 28.7%, respectively, year-to-date.

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