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Jim Cramer Says AT&T Stock Is Worth Buying

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AT&T (T) stock was on the upswing today and was up 0.19% at 1:10 PM ET. However, yesterday, the telecom stock rose around 0.1% and closed at $39.10. AT&T stock is trading 1.5% below its 52-week high of $39.70 in November 2019 and about 35.2% above its 52-week low of $28.92. AT&T’s market cap was $285.6 billion yesterday.

CNBC’s Mad Money host Jim Cramer has shared his views on AT&T stock repeatedly. During the program’s lightning round yesterday, Cramer said, “I am a believer in AT&T. I am a believer in the story that Elliot Partners tells. I think it is a good situation to own.”

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Elliott Management’s stake in AT&T

Paul Singer’s Elliott Management announced a $3.2 billion stake in AT&T in September 2019 and criticized its strategy. The hedge fund wrote a letter to AT&T’s board of directors suggesting that AT&T stock could be worth $60+ per share by 2021.

The well-known activist investor proposed a four-step restructuring plan in the letter to boost AT&T’s stock performance. Elliott’s “Activating AT&T Plan” consists of four pillars:

  • A strategic review with potential divestitures like DIRECTV and Mexican wireless operations.
  • Operational improvements with an EBITDA margin expansion of 300 basis points by 2022 achieved through net cost savings of $5 billion.
  • No more material M&A to focus on dividend growth and share repurchases.
  • Enhanced leadership and adopting corporate governance best practices.

In recent months, AT&T has been monetizing its non-core assets. The telecom company plans to monetize $5 billion–$10 billion in non-core assets this year. Last year, AT&T divested about $14 billion in non-core assets.

AT&T’s management also adopted no major acquisition recommendation in its three-year capital allocation plan announced on October 28. The plan includes growth in dividends, repurchases of shares, sale of non-core assets, and debt reduction.

According to a MarketWatch report, Elliott Management partner Jesse Cohn noted, “We commend AT&T for the positive steps announced today, which will create substantial and enduring shareholder value at one of America’s greatest companies.”

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Financial performance

AT&T reported revenue of $44.6 billion in the third quarter of 2019, a 2.5% fall compared to the third quarter of 2018. The telecom company added 101,000 postpaid phone net customers. However, it lost 1.16 million pay-TV subscribers due to competition from online video streaming services. In Q3 2019, AT&T reported adjusted EPS of $0.94 compared to $0.90 in Q3 2018.

Wall Street analysts estimate that in Q4 2019, AT&T could generate adjusted EPS of $0.88 on revenue of $47.0 billion. Analysts expect AT&T’s revenue to rise 6.3% YoY (year-over-year) to $181.4 billion in 2019 and 0.4% YoY to $182.1 billion in 2020. Plus, analysts expect its adjusted EPS to rise 0.6% YoY to $3.54 in 2019 and 1.7% YoY to $3.60 in 2020.

Analysts’ views of AT&T stock

Of the 30 analysts tracking AT&T stock, 13 suggest a “buy,” 15 suggest a “hold,” and two suggest a “sell.” Their views were similar last month, although just 14 recommended a “hold.” Analysts’ average target price of $39.02 for AT&T stock implies a 0.2% downside based on yesterday’s closing price of $39.10.

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5G

As of January 3, AT&T offers 5G+ service in certain parts of 35 markets for business customers. The company had initially targeted to cover certain parts of 29 markets with 5G+ service. The service uses a high-band mmWave spectrum and offers high speed and capacity.

Meanwhile, AT&T offers 5G service in certain parts of 19 markets for both consumers and business customers. The service uses a low-band 850 MHz spectrum and offers broader coverage. AT&T’s management expects to offer 5G service to nationwide consumers in the first six months of this year.

According to a PCMag report on January 3, “High-band, millimeter-wave 5G is fast, but it has only about an 800-foot radius from panels; low-band 5G covers whole metro areas, but it’s at best only slightly faster than 4G.”

Meanwhile, T-Mobile (TMUS) launched its low-band 5G service nationwide using 600 MHz spectrum, covering 200 million people across the US. To learn more, read T-Mobile Lights Up Its Nationwide 600 MHz 5G Network.

AT&T is focusing on network virtualization technologies to enhance its network performance. According to FierceTelecom, Scott Mair, the president of AT&T technology and operations, noted in a blog post, “We aim to control 75% of our core network functions with software by the end of 2020, and by reaching 65% at the end of 2019, we’re nearly there.”

Mair added, “Today, 100% of the data traffic that runs through the infrastructure connecting the elements of our core network together is backed by SDN.”

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Stock performance

AT&T stock has risen 28.9% in the last 12 months. Meanwhile, the Dow Jones and the S&P 500 have risen 22.3% and 27.3%, respectively. Whereas T-Mobile stock has risen 16.5% in the last 12 months, Sprint (S) has fallen about 15.8%.

Based on Monday’s closing price, the telecom giant’s stock was trading as follows:

  • 1.0% above its 20-day moving average of $38.73.
  • 1.6% above its 50-day moving average of $38.48.
  • 3.9% above its 100-day moving average of $37.62.

AT&T has a 14-day relative strength index score of 59, which means that the stock is neither overbought nor oversold. The stock’s 14-day MACD is 0.04, which indicates an upward trading pattern.

T-Mobile and Sprint merger

Sprint and T-Mobile made public plans to combine in April 2018. However, the merger contract is still pending as it faces litigation filed by over a dozen state attorneys general. The plaintiffs argue that the combination is harmful to the wireless industry.

In 2019, the Department of Justice and the Federal Communications Commission approved the merger deal. To learn more about this ongoing merger process, read The Latest Odds of the T-Mobile–Sprint Merger Approval.

To learn more about AT&T, please read How Could AT&T Stock Perform in 2020? and Will Debt Affect AT&T’s Dividend Yield?

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