AT&T Inc. (T) Buy or Sell Stock Guide

Last updated: Last Friday

The analysis below may be helpful to you if you have any of the following questions about T stock:

  • Is T a buy or a sell?
  • Should I sell or hold T stock today?
  • Is T a good buy / a good investment?
  • What are T analyst opinions, recommendations, ratings?

Here are T stock buy reasons/signals:

1. AT&T and Verizon dominate the U.S. wireless industry. The wireless business generates strong profits and enables the firm to steadily invest in its networks, thereby maintaining its competitive scale-based advantage over smaller rivals.

2. AT&T’s solid positioning across key distribution platforms enables greater scale and integration to better meet customer needs as access pipes converge.

3. The DirecTV deal enhances video scale (now the number-one pay-TV provider) and drives significant cost synergies.

4. AT&T is gearing up to launch the first standards-based mobile 5G services to consumers in multiple U.S. markets by the end of 2018. AT&T has been working hard since 2017 and laying the foundation for mobile 5G network. The company has completed network upgradation in 23 major cities.

5. The FirstNet Project is the first dedicated nationwide wireless network for first responders, which is likely to drive AT&T’s prospects in 2018. AT&T and the First Responder Network Authority (FirstNet) revealed the inclusion of 50 states, two U.S. territories and Washington DC in the FirstNet project. As part of the 25-year contract, FirstNet will provide AT&T with a swath of 20 MHz of spectrum in the 700 MHz frequency band for the entire duration.

6. The FirstNet Project is the first dedicated nationwide wireless network for first responders, which is likely to drive AT&T’s prospects in 2018. AT&T and the First Responder Network Authority (FirstNet) revealed the inclusion of 50 states, two U.S. territories and Washington DC in the FirstNet project. As part of the 25-year contract, FirstNet will provide AT&T with a swath of 20 MHz of spectrum in the 700 MHz frequency band for the entire duration.

7. Since the announcement of the AT&T-Time Warner $85.4 billion cash-and-stock deal in October 2016, the industry has been rife with speculation over whether the deal will get regulatory approval. The pending merger has been approved by antitrust officials in 17 countries and is waiting for the same from Brazil and the United States. AT&T has gained approval from the European Commission, an institution of the European Union (EU) and from the Mexican telecommunications and broadcasting services regulator, Federal Telecommunications Institute (IFT) for this pending deal.

8. AT&T is looking forward to benefit from the following prospects. First, if the new FCC scraps Net Neutrality laws, the ISP (Internet Service Provider) industry will be the major beneficiary. AT&T is a major ISP. Net Neutrality, which disallowed discriminatory pricing policy, has significantly reduced revenues and margins of ISPs. Secondly, the U.S. telecom industry is going to be a major beneficiary of the proposed tax-reform bill of President Trump.

9. Acquisition of the Vyatta network operating system, associated assets of Brocade Communications Systems and hiring of some of Brocade’s employees associated with Vyatta business should act as a tailwind for AT&T’s prospects. This deal will expand AT&T’s SD-WAN and white box capabilities for business customers. The buyout will enable the company to deliver cloud or premises-based VNFs (virtualized network functions) in connection with AT&T Software-defined Wide Area Network (SD-WAN) cloud service with VeloCloud.

10. T forward dividend yield is 5.82%, higher than the industry (0.21%) and sector (0.31%) forward dividend yields.

11. T forward P/E ratio is 9.45, and it’s low compared to its industry peers’ P/E ratios.

12. T average analyst rating is Buy.

13. T average analyst price target ($37.74) is above its current price ($32.94).

Here are T stock sell reasons/signals:

1. Intensifying competition in a maturing U.S. wireless market along with continued headwinds in the wireline segments challenge revenue growth and eventually pressure margins.

2. With DirectTV, AT&T bought an aging satellite TV business that will steadily lose customers to the cable alternatives and cheaper over-the-top offerings. DirecTV Now will mitigate, but not entirely offset, these losses.

3. The Time Warner deal will add more than $40 billion of debt to the balance sheet and about $2 billion to AT&T’s annual dividend obligation.

4. Cord-cutting seems to have seriously affected one of the major pay-TV stock like AT&T in the fourth-quarter 2017 financial results. As of Sep 30, 2017, total video connections in the Entertainment Group segment were 25.083 million, down 0.8%. Of the total, Satellite connections tallied 20.605 million, down 0.8%. U-verse connections were 3.691 million, down 18.3%. DIRECTV NOW connections were 0.787 million.

5. In a saturated wireless market, spectrum crunch has become a major issue in the U.S. telecom industry. Most of the carriers are finding it increasingly difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of iPhone and Android smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services.

6. AT&T has been trying actively to attract customers with attractive discounts as a counteractive measure against the competition posed by the smaller carriers like T-Mobile US & Sprint Corp. who have been utilizing the same strategy to lure customers. AT&T announced a range of freebies and cash credits to bring in customers and lower the churn rate. However, this might strain the margins going ahead.

7. The company’s wireline division is struggling with persistent losses in access lines as a result of competitive pressure from voice- over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. These are weighing on the company’s revenues and margins. Moreover, AT&T’s quest for faster growth will increase subscriber acquisition cost in both consumer and SMB (Small and Medium Business) businesses and put pressure on wireline margins.

8. T quarterly revenue growth was -3.40%, lower than the industry and sector average revenue growth (0.09% and 5.92%, respectively).

9. T profitability is declining. The YoY profit margin change was -1.17pp.

10. T short share of float is 3.18%. The stock is much more frequently shorted than the average industry, sector or S&P 500 stock.

11. T short interest (days to cover the shorts) ratio is 6.6. The stock garners more short interest than the average industry, sector or S&P 500 stock.

What are your thoughts on T?

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Comments (1)expand_more
Robert Furman | Mar 08, '18

T's payout ratio per Morningstar is a very low and safe 41.39.

Time Warner's content will enhance T's  revenue and earnings as streaming becomes more and more mainstream with the build out of 5G. T's cash flow will more than support this strong dividend yield into the future. Everyone's portfolio should have low growth high dividend yielders along with high growth low dividend yielders to balance out the growth and income of a portfolio.

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