Despite the challenging macroeconomic environment, AT&T Inc.’s (T) EPS surpassed the consensus EPS estimate by 6.6% in the fourth quarter. However, its revenue missed analyst estimates by 0.1%.
Post its earnings release T’s CEO, John Stankey, said, “Our consistent go-to-market strategy and the simplicity of our offerings drove continued robust, high-quality wireless and fiber customer additions in the fourth quarter. Over the last ten quarters, we’ve demonstrated sustainable momentum in growing customer relationships, with 7.5 million postpaid phone net adds and 2.9 million AT&T Fiber net adds.”
In the fourth quarter, the company’s postpaid phone net adds stood at 656,000, and 2.9 million for fiscal 2022. T’s Fiber net adds came in at 280,000 for the fourth quarter, recording over 200K net adds in the twelfth consecutive quarter. Also, fiber net adds for fiscal 2022 stood at 1.2 million, posting the fifth straight year of 1 million or more.
T’s free cash flow at the end of fiscal 2022 came in at $14.10 billion, higher than analyst estimates of $13.78 billion. Its domestic wireless service revenues increased 5.2% in the last quarter and 5.1% for the entire year. Consumer broadband revenues rose 7.2% in the fourth quarter, driven by T’s fiber revenue growth of more than 31%. Moreover, its broadband revenues increased 6.4% in the fiscal 2022.
Stankey said, “We met or surpassed all of our profitability targets for the year, all while investing at record levels to bring the benefits of our 5G and fiber technologies to even more people. As we enter 2023, I’m confident in the trajectory of our business and in our team’s ability to deliver profitable and durable growth for our shareholders.”
For fiscal 2023, T expects wireless service revenue growth of 4% or higher and broadband revenue growth of 5% or higher. Its adjusted EBITDA is expected to grow 3% or higher. Its free cash flow for the current year is expected to be $16 billion or better, and its adjusted EPS is expected to come between $2.35 to $2.45, including a negative impact of 25 cents from higher taxes and interest rates.
Moreover, T’s forward annual dividend of $1.11 per share yields an attractive 5.56% at the current price. Its four-year average yield is 6.97%. The company will pay a dividend of $0.2775 per share on February 1, 2023. Wall Street analysts expect the stock to hit $21.50 in the near term, indicating a potential upside of 7.8%.
T’s stock has gained 10.7% in price over the past three months and 9.5% over the past year to close the last trading session at $19.95.
Here’s what could influence T’s performance in the upcoming months:
Strategic Agreement
On December 23, 2022, T and BlackRock Alternatives, through a fund managed by its Diversified Infrastructure business, announced a definitive agreement to form a joint venture to operate a commercial fiber platform. The joint venture called Gigapower, LLC will provide a fiber network to internet service providers and other businesses across the U.S.
Gigapower will serve customers outside T’s 21-state wireline service. T’s CEO John Stankey said, “With this joint venture, more customers and communities outside of our traditional service areas will receive the social and economic benefits of the world’s most durable and capable technology to access all the internet has to offer.”
Mixed Financials
T’s total operating revenues increased 0.8% year-over-year to $31.34 billion for the fourth quarter ended December 31, 2022. Its adjusted EBITDA increased 7.9% year-over-year to $10.23 billion. The company’s adjusted operating income rose 12.9% from the prior-year period to $5.65 billion.
In addition, its adjusted EPS came in at $0.61, representing an increase of 8.9% year-over-year. For the fiscal year ended December 31, 2022, T’s long-term debt declined 15% year-over-year to $128.42 billion.
Its net loss attributable to T came in at $23.52 billion, compared to net income attributable to T of $5.04 billion in the year-ago period.
Mixed Analyst Estimates
Analysts expect T’s EPS for fiscal 2023 to decline 3.9% year-over-year to $2.47. On the other hand, its revenue for fiscal 2023 is expected to increase 1.5% year-over-year to $122.60 billion. Its EPS and revenue for fiscal 2024 are expected to increase 2.2% and 1.2% year-over-year to $2.52 and $124.09 billion, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, T's 8.08x is 52.8% lower than the 17.12x industry average. Its forward P/S of 1.16x is 14.4% lower than the 1.35x industry average. Also, the stock's 7.05x trailing-12-month EV/EBITDA is 20.8% lower than the 8.90x industry average.
High Profitability
In terms of trailing-12-month EBIT margin, T’s 18.98% is 105.2% higher than the 9.25% industry average. Likewise, its 33.90% trailing-12-month EBITDA margin is 78.9% higher than the industry average of 18.95%. Furthermore, the stock’s 12.25% trailing-12-month levered FCF margin is 49% higher than the industry average of 8.23%.
POWR Ratings Show Promise
T has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. T has a B grade for Value, in sync with its discounted valuation.
It has a B grade for Quality, consistent with its high profitability.
T is ranked #5 out of 19 stocks in the Telecom – Domestic industry. Click here to access T’s Growth, Momentum, Stability, and Sentiment ratings.
Bottom Line
T is trading above its 50-day and 200-day moving averages of $19 and $18.74, respectively, indicating an uptrend. The company topped earnings estimates in the fourth quarter and added higher-than-expected postpaid phone customers.
The company’s long-term debt declined at the end of fiscal 2022 through its divestment of WarnerMedia and DirecTV. T aims to achieve 2.5x net debt-to-adjusted EBITDA and expects a free cash flow of $16 billion or higher in 2023, driven by wireless revenue growth. Moreover, the company is aiming for 30 million-plus fiber locations by the end of 2025.
Furthermore, its joint venture Gigapower will help it expand its fiber coverage by an initial 1.5 million locations and also provides the opportunity to expand its out-of-network footprint further. Given its discounted valuation, high profitability, and high dividend yield, it could be wise to buy the stock now.
How Does AT&T Inc. (T) Stack up Against Its Peers?
T has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Telecom – Domestic industry with an A (Strong Buy) or B (Buy) rating: Ooma, Inc. (OOMA), Spok Holdings, Inc. (SPOK), and Verizon Communications Inc. (VZ).
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T shares fell $0.10 (-0.50%) in premarket trading Monday. Year-to-date, T has gained 9.43%, versus a 5.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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