AT&T’s 1Q Results Beat Estimates; Shares Up 5%

AT&T’s shares were up 5.2% in early trading on Thursday as the company reported better-than-expected 1Q results. The telecommunication giant posted revenues of $43.9 billion, up 2.7% year-on-year that came in ahead of analysts’ estimate of $42.7 billion. The company’s adjusted EPS increased 2.4% year-on-year to $0.86 and topped consensus estimates of $0.78 per share.

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AT&T’s (T) CEO, John Stankey said, “We continued to excel in growing customer relationships in our market focus areas of mobility, fiber and HBO Max. We had another strong quarter of postpaid phone net adds, higher gross adds, lower churn and good growth in Mobility EBITDA.”

“We also continue to increase penetration in markets where we offer fiber broadband and we’re moving quickly to deploy more fiber. HBO Max continued to deliver strong subscriber and revenue growth in advance of our international and AVOD launches planned for June,” Stankey added.

The growth in revenues was driven by an increase in mobility and WarnerMedia revenues. The growth in mobility revenues was fuelled by higher equipment sales. The company’s WarnerMedia division had revenues of $8.5 billion, up 9.8% year-on-year driven by a rise in content, advertising, and subscription revenues.

In the first quarter, the company paid total dividends of $3.7 billion with a dividend payout ratio of 63.5%.

At the end of 1Q, AT&T’s HBO Max and HBO subscribers rose year-on-year by more than 11 million in the United States. HBO and HBO Max together had 44.2 million subscribers at the end of the first quarter in the United States with average revenue per user (ARPU) of $11.72. (See AT&T stock analysis on TipRanks)

For FY21, AT&T expects revenues on a comparative basis to grow around 1% and expects adjusted EPS to be stable. The company anticipates capex to be approximately $17 billion and gross capital investment of about $22 billion. AT&T expects free cash flow to be around $26 billion in FY21 and expects to maintain a dividend payout ratio in the “high 50’s% range”.

Last month, Tigress Financial Partners analyst Ivan Feinseth reiterated a Buy on the stock. Feinseth said in a note to investors, “AT&T is well-positioned to gain from solid subscriber growth across its key business lines of wireless and HBO Max DTC (Direct-to-Consumer) streaming service, increasing subscribers to its FirstNet first responder network, ongoing broadband buildout, and expanded offering of 5G-enabled Edge computing solutions.”

“AT&T also continues to improve its capital allocation and capital management through its ongoing debt reduction process,” Feinseth added.

Overall, the Street is cautiously optimistic on the stock with a Moderate Buy consensus rating based on 5 Buys, 6 Holds, and 1 Sell. The average analyst price target of $31.50 implies that the stock is fully priced at current levels.