AT&T (NYSE:T) stock closed trading at $39.37 on January 8, rising 0.31% from the previous trading session. This performance lagged behind the S&P 500’s 0.49% increase on the day. Meanwhile, the Dow Jones Industrial Average was up 0.56%. The Nasdaq Composite was up 0.67% as of the same time.
On Wednesday, during the Citi Global TMT West Conference, AT&T CFO John Stephens provided an update to the company’s shareholders.
AT&T’s buyback program
As of January 8, AT&T has repurchased a total of 140 million shares it issued for the acquisition of Time Warner, with more to come. In the fourth quarter of 2019, the company repurchased 60 million shares, while so far in 2020 it’s repurchased 80 million shares. AT&T’s management said, “Funding for the ASR-related share retirements will adversely affect the company’s first quarter 2020 net debt-to-adjusted EBITDA ratio, but Stephens said the company expects this ratio will come back down during the rest of 2020.”
Over the next three years, the telecom (telecommunications) company has committed to returning $75 billion to shareholders, $45 billion in dividends, and $30 billion through buybacks.
As of January 8, AT&T stock has the highest dividend yield among its peers at 5.3%. Its closest peer is Verizon with a 4.1% yield. T-Mobile (NYSE:TMUS) and Sprint (NYSE:S) don’t pay stock dividends. Therefore, investors looking for a high-yield telecom stock could consider AT&T.
In the first nine months of 2019, AT&T’s cash outflow toward dividends was $11.2 billion. The company had about $165.2 billion in total debt on its balance sheet at the end of September 2019. It also had about $6.6 billion in cash on its balance sheet. The company’s cash flow from operating activities rose from $31.5 billion in the first nine months of 2018 to $36.7 billion in the first nine months of 2019. The wireless carrier is on track to pay down its huge debt and achieve a net debt-to-adjusted EBITDA ratio of 2.5x as of December 2019.
AT&T’s 2019 financial results
AT&T is scheduled to announce its earnings for the fourth quarter before the market opens on January 29. Wall Street analysts expect AT&T to report sales of $47.0 billion in the fourth quarter. This figure would mark a fall of 2.0% YoY (year-over-year) compared to $48.0 billion in the fourth quarter of 2018. Analysts expect its EPS to rise 2.3% YoY to $0.88 in the fourth quarter. Currently, analysts expect 6.3% and 0.4% rises in the company’s 2019 and 2020 sales, respectively. Meanwhile, they expect 0.6% and 1.7% adjusted EPS growth in 2019 and 2020, respectively.
AT&T’s management is confident that it has fulfilled all of its 2019 promises to shareholders. In the fourth quarter of 2019, the company expects lower domestic wireless equipment sales revenue and Warner Bros. theatrical revenue compared to the fourth quarter of 2018. During the conference on January 8, AT&T’s management said, “Investment in HBO Max in the fourth quarter, in the form of new content production, foregone licensing revenues and platform costs, pressured operating income about $500 million.”
AT&T expects low-single-digit adjusted EPS growth in 2019. In the year, the telecom company expects to report free cash flow of $28 billion and gross capex of $23 billion. The wireless carrier expects to monetize nearly $14 billion worth of nonstrategic assets in 2019.
In comparison, analysts expect T-Mobile to report revenue of $11.8 billion in the fourth quarter. That figure represents 3.3% YoY growth from $11.4 billion and 6.8% sequential growth from $11.1 billion. Analysts expect T-Mobile’s fourth-quarter EPS to rise 10.7% YoY to $0.83.
Sprint is the only major cellular service provider in the US that’s generating losses. The telecom company is expected to report EPS of -$0.05 on revenue of $8.2 billion in the quarter that ends in December.
AT&T’s 2020 guidance
AT&T’s management expects its 2020 earnings to be in the range of $3.60–$3.70, including share buybacks and its HBO Max investment. Meanwhile, sales are expected to increase by 1%–2%. Management expects the 2020 adjusted EBITDA margin to be stable compared to last year. For 2020, the telecom company expects to report free cash flow of $28 billion and gross capex of $20 billion. It expects to monetize $5 billion–$10 billion worth of nonstrategic assets in 2020.
During the conference on Wednesday, Stephens said, “For the last four, five years, we’ve been running at about a 6% cost reduction rate for the big iron for the network operations. We’re getting that from software-defined network and network function virtualization. And we believe we can step that up about 4%.”
As of January 8, AT&T has virtualized approximately 71% of its network functions. The company expects to reach 75% by the end of this year.
In September 2019, hedge fund Elliott Management made public that it owned a $3.2 billion stake in AT&T. Elliott also suggested a restructuring plan to boost AT&T’s stock price above $60 per share by the end of 2021. To learn more, read AT&T Stock: Will Elliott’s Stake Keep Providing a Boost?
In May, AT&T’s WarnerMedia segment is introducing an online streaming service called HBO Max. The service will be priced at $14.99 per month. HBO Max will launch with approximately 10,000 hours of content. It will compete with Comcast’s Peacock and Disney+. Traditional pay-TV operators are losing customers due to competition from over-the-top services. Read Can HBO Max Help AT&T Balance Its DIRECTV Losses? to learn more.
Most of the analysts covering AT&T stock have maintained a neutral outlook. Wall Street analysts have an average price target of $39.02 on the stock. This target implies a downside of 0.9% based on the stock’s closing price of $39.37 on January 8.
The consensus recommendation for T-Mobile is a “buy,” and for Sprint, it’s a “hold.” Wall Street analysts expect an upside potential of 14.6% for T-Mobile based on its closing price on January 8. Analysts have increased the telecom company’s 12-month consensus target price from $89.00 in December to $91.05 in January. Of the 22 analysts covering T-Mobile, six have given it “strong buys,” nearly 11 have given it “buys,” and five have given it “holds.”
According to analysts’ estimates, Sprint stock offers a potential upside of 24.5% for the next 12 months. The stock has a mean target price of $6.41 compared to its current market price of $5.15. Of the 17 analysts covering Sprint, two have given it “sells,” 13 have given it “holds,” and two have given it “buys.”
Analysts expect AT&T’s EPS to rise 1.7% to $3.60 in 2020. AT&T’s current stock price is 10.95x its estimated 2020 adjusted EPS. This multiple is lower than T-Mobile and Verizon’s multiple. TMUS’s and VZ’s forward PE multiples are 16.62x and 12.10x, respectively.
AT&T stock has risen 25.9% in the last 12 months. In comparison, T-Mobile stock has risen 17.2% in the last 12 months, while Sprint has fallen about 18.1%.
On January 8, AT&T was trading 0.8% below its 52-week high of $39.70 and 36.1% above its 52-week low of $28.92.
Based on Wednesday’s closing price, T was trading as follows:
- 1.2% above its 20-day moving average of $38.89.
- 2.0% above its 50-day moving average of $38.58.
- 4.3% above its 100-day moving average of $37.76.
AT&T has a 14-day relative strength index score of 63, which implies that the stock is neither oversold nor overbought. The stock’s 14-day MACD is 0.12, which implies an upward trading pattern.
AT&T’s upper, middle, and lower Bollinger Band levels are $39.61, $38.85, and $38.08, respectively. On January 8, it closed near its upper Bollinger Band level. This value suggests that the stock is overbought.
Currently, T-Mobile and Sprint are trying to merge for the third time. The $26 billion merger deal was announced in April 2018. However, the merger is still not complete, as more than a dozen state attorneys general have sued to stop it. Antitrust regulators in the US approved the deal last year. Check out The Latest Odds of the T-Mobile–Sprint Merger Approval to learn more about the proposed merger deal.