AT&T Inc.

T Details

AT&T Inc. (NYSE: T) is a conglomerate. The Company is a provider of telecommunications, media, and technology services globally. The Company operates through three segments: The communication segment, Warner Media segment, and Latin America segment. Consumers get cellular and wireline telecom, video, and internet services from the Communications section. Mobility, Business Wireline, and Consumer Wireline are the business units of the Communication section. Warner Media creates, produces, and distributes feature films, television shows, video games, and other content in a variety of physical and digital media. 

Latest Updates

• Expiration and Upsizing of Tender Offer Announced: On May 23, 2022, AT&T announced that its offers to purchase for cash (i) 54 series of outstanding Notes "Higher Coupon Offers" and (ii) 9 series of outstanding Notes "Discount Offers" had expired and that it had amended the Offers to Purchase by increasing the Maximum Purchase Consideration for the Higher Coupon Offers from USD 5.0 billion to USD 5.5 billion and for the Discount Offers from USD 3.0 billion to USD 3.2 billion.
• Long Term Benefit from the merger of Warner Bros and Discovery: On April 8, 2022, Discovery, Inc., and AT&T Inc announced that their merger of the Warner Media and Discovery businesses had been completed. The merger creates Warner Bros. Discovery, Inc., a superior standalone global media, and entertainment company that can provide more choices to customers worldwide while nurturing creativity and building wealth for shareholders.

Q1 FY22 Results

• Decrease in Revenue: AT&T’s revenue for Q1 FY22 was USD 38.1 billion, down 13.3% from USD 43.9 billion in Q1 FY21 due to divested operations and reduced Business Wireline revenues. Revenues were USD 38.1 billion, up 1.6% from USD 37.5 billion in the prior-year quarter, excluding the U.S. Video division and Vrio.

(Source: Company Filings)

• Cash Flow Activities: Operating cash flows were USD 5.7 billion, down USD 4.2 billion Y-o-Y, with USD 5.1 billion in content spending. In the current quarter, capital expenditures totaled USD 4.7 billion. In Q1 FY22, net debt climbed by USD 12.8 billion, with a net debt-to-adjusted EBITDA ratio of 3.42x.
• Efficiency in Operating Expenses: In Q1 FY22, operating expenses were USD 32.5 billion, down from USD 36.3 billion a year ago due to the separation of U.S. video operations and the effects of Vrio and other divested firms.
  

Key Risks

• Leverage Risk: Increases in debt levels to support spectrum purchases or other strategic decisions could harm the company's ability to finance future debt at reasonable rates and adverse economic trends.
• Litigation Risk: Several litigation suits have been filed against the company in the United States and abroad. Adverse litigation or government probe outcomes could force them to pay large sums.
  

Valuation Methodology: Price /Earnings per Share-Based Relative Valuation

(Source: REFINITIV, Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

The corporation paid USD 10 billion in net debt during the quarter, while the stock's 52-week high and low are USD 22.32 and USD 16.62, respectively. In FY 22 and FY 23, a capital investment of USD 24 billion is planned for expansion in 5G/Fiber. Moreover, Excess cash creation and profits from the Warner Media acquisition will be used to strengthen the balance sheet.

Based on revenue and operational highlights, higher ROE, growing net margins, robust business model, related risks, and current valuation, we recommend a "Hold" rating on the stock at the current market price of USD 21.12 as of June 03, 2022, at 06:40 AM PDT.

1 Year Technical Price Chart (as of June 03, 2022, at 06:40 AM PDT). Source: REFINITIV, Analysis by Kalkine Group 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.