After listening to AT&T’s (T) CEO, John Stankey, talk at the Citi AppsEconomy Virtual Conference on January 5, 2022, I am not convinced this company has what it takes to move the needle and make itself a stock I am bullish on. As such, I am neutral on AT&T.
I think the problem with AT&T is that no matter what it does to drive shareholder value (besides spinoffs—more on the proposed Time Warner spinoff later), the company is just too big to move the needle. When I calculate the stock’s intrinsic value, I get a value of $26 per share, an estimate that is very close to the Wall Street analyst estimates and close to where the stock is trading today. I do not see a lot of upside for the company.
I think that Stankey realizes this, which is why he is spinning off Time Warner to merge with Discovery (DISCA) and become a new entity. In the Hollywood Reporter on September 21, 2021, he said that he thought the market was pricing HBO Max like a product sold by a legacy telecom company instead of a direct competitor to Netflix.
He thought setting up Time Warner and Discovery on their own was a way to change investor perception and drive value to AT&T’s shareholders.
I think he is correct that HBO Max is not valued the same as Netflix. However, it has to do not with being a part of a legacy telecom company but the fact that it was so late to the streaming game. I do not know what is on HBO Max besides The Sopranos and Sex and The City reruns. I’m not sure anyone else has much time for another streaming service to eat away at their day either. That is the problem for HBO Max.
Recent Results and Dividend
AT&T’s stock has been trading between $22.02 (the 52-week low set on December 15, 2021) and $33.88 (the 52-week high set on May 10, 2021).
AT&T brought in revenues of $173.6 billion over the last twelve months with a net income of $1.15 billion.
The company reported third-quarter earnings of $0.87 per share, beating analyst estimates of $0.78 per share by $0.08. It has also reported $2.62 in earnings per share for the first three quarters of 2021, beating analyst estimates of $2.36 for the same period.
AT&T currently pays a dividend of $0.52 per quarter for a yearly dividend yield of 7.6%. Prior to 2021, the company’s dividend had also been growing every year for the past 13 years. This was the one shining light for AT&T stock. However, the company did not raise its dividend last year, and the previous raises were not done at an attractive rate. The last time the dividend was increased was January 2020, and it was a one-cent increase at that time.
The company has some weakness on its balance sheet. As it stands now, AT&T has a current ratio of 0.70, so it has enough current assets on hand to pay its bills for the three quarters at its current burn rate. I like to see a current ratio of at least 1.0 before recommending a stock.
When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $26.00. Basically, that is where the stock is trading now (considering intrinsic value is an estimate that can be changed dramatically by adjusting small estimates.
Wall Street’s Take
Turning to Wall Street, AT&T stock earns a Moderate Buy consensus rating based on four Buys and four Holds assigned in the past three months. Additionally, the average AT&T price target of $27.81 puts the upside potential at 2.2%.
Of the 86 bloggers that have blogged about AT&T in the last three months, 84% of them are bullish, while the technology sector average is approximately 70% bullish.
Conclusion
Based on the intrinsic value of this stock, the Wall Street analyst’s estimates, blogger estimates covering AT&T, I am neutral on this stock. I am not sure that AT&T will be able to move the needle enough to make a difference to the capital markets, and I believe the share price will not move much over the next several years.
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