Why Did AT&T Gain Over 4% Despite Low Q1 Profit?

AT&T (T) shares rose more than 4% to $20.21 on April 21 despite its Q1 2022 results showing a drop in overall revenue and profit compared to the same quarter the previous year.

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AT&T primarily offers telecom services, and dabbled in the media business until recently, when it decided to drop out of that space.

Q1 Numbers at a Glance

Overall revenue declined to $38.1 billion from $43.9 billion a year ago. Adjusted earnings fell to $0.77 per share from $0.85 per share for the same quarter the previous year. A spike in costs associated with network upgrades, media programming, and marketing activities weighed on the company’s profit. However, the results still exceeded the earnings consensus estimates of $0.59 per share on revenue of $29.5 billion.

AT&T Returns to Its Roots After Media Experiment

AT&T has gone back to its roots. It has divested its media operations to narrow its focus to the core telecom business. It spun off its WarnerMedia unit and concurrently merged it with Discovery to form a new media entity named Warner Bros. Discovery (WBD). AT&T earned more than $40 billion in cash from the transaction, and its shareholders received a 71% stake in WBD.

AT&T CEO, John Stankey, said, “AT&T has entered a new era, meeting this opportunistic moment from a position of flexibility and strength thanks to our evolving networks, enhanced customer experience, growing 5G and fiber customer base and a much stronger balance sheet.”

Telecom Business Delivers Impressive Results

AT&T’s remaining telecom business delivered strong results, which excited investors. Telecom segment revenue jumped 2.5% year-over-year to $29.7 billion. The company added 691,000 postpaid phone customers, its best for a first quarter in more than a decade. The segment posted adjusted earnings per share (EPS) of $0.63, which improved from $0.58 per share for the same quarter the previous year.

Wall Street’s Take

The Street is cautiously optimistic about AT&T stock with a Moderate Buy consensus rating. That’s based on nine Buys, six Holds, and one Sell. The average AT&T price target of $23.94 implies 18.5% upside potential to current levels. Shares have increased 9% year-to-date.

Hedge Funds

TipRanks’ Hedge Fund Trading Activity tool shows that confidence in AT&T is currently Very Positive, as 25 hedge funds increased their cumulative holdings of the stock by 1.2 million shares in the last quarter.

Key Takeaway for Investors

AT&T’s prospects look bright with the focus narrowing to the telecom business. For example, the flexibility that comes from its exit from the media business may allow the company to build out its 5G network more rapidly to take advantage of the soaring demand for high-speed internet.

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