AT&T Inc. (NYSE:T) is one of the world’s major telecommunications corporations. The corporation has a $130 billion market valuation and a 6% dividend yield following the separation of Warner Bros. Discovery, Inc. (WBD). However, the split allowed the corporation to significantly improve its debt situation. As we will see throughout this piece, the firm is a good long-term investment with the potential for significant profits.
AT&T Business Priorities
AT&T is focusing on its business goals across the board in order to generate significant shareholder benefits. AT&T has a number of business initiatives that we believe will result in higher shareholder returns. The first is the company’s continual expansion of client ties. The company’s stats were really impressive, as we’ll see in the next section. The company’s ongoing expansion in this market demonstrates the strength of its operations.
AT&T Subscriber Growth
AT&T has maintained extraordinarily high subscriber additions, demonstrating its financial strength. The ongoing performance of the company’s postpaid phone subscribers is one of the most intriguing metrics in the company’s earnings. In the second quarter of 2022, the firm added over 800,000 users, with postpaid phone churn being low. We expect the company’s postpaid phone customer base to expand to more than 68 million.
The company’s AT&T fiber subscriber business has also performed well, though we’d like to see its penetration percentage grow. The corporation gained over 300,000 net additions, although the majority of that was attributable to increasing client areas. Maintaining penetration while rapidly expanding demonstrates the company’s success in new areas. In our opinion, this is still one of the most fascinating parts of the company’s operations.
AT&T Financial Performance
AT&T experienced a dismal quarter, but the corporation is capable of producing good financial outcomes. AT&T has definitely experienced financial difficulties. AT&T’s standalone revenue grew year over year. At the same time, the company’s adjusted earnings per share and margins were solid.
However, the corporation has continued to spend extensively on capital, undermining its capacity to create shareholder benefits.
The corporation generated $7.7 billion in operating cash flow and $1.4 billion in free cash flow (“FCF”). The business’s projection for FCF in the mid-$10s billion is challenging, but with increasing temporary expenditures, we anticipate the company to significantly improve its FCF moving ahead. The firm has maintained reasonable FCF projections.
Our View
AT&T has had difficulties. The separation comes at a challenging moment for the corporation, and increasing interest rates aren’t helping its premise. The firm is still heavily in debt, and it has failed to create the projected instant cash flow, etc. As a result, investors have become more dissatisfied with the firm. Regardless, the firm has the potential to deliver significant shareholder returns. The company’s FCF yield will be in the double digits in the next years, allowing for a range of shareholder returns despite the company’s debt and making it an attractive investment.
Thesis Risk
In our opinion, AT&T is one of the least risky firms. Even with competition from the T-Mobile Sprint merger, the firm has proven a consistent capacity to outperform in a dynamic market, while both the company and competitor Verizon have been forced to spend considerably in the spectrum to catch up. However, the corporation still faces the possibility of future poor output, which will reduce shareholder profits.
Bottom Line
AT&T has suffered as a result. The corporation has a market value of about $120 billion and a dividend yield of nearly 7%. The company has continued to produce significant FCF, which we expect to rise as the company’s main businesses continue to surpass expectations. Despite a larger initial capital need.
We anticipate that AT&T will continue to provide significant shareholder returns. Despite rising interest rates, the corporation can afford its debt, and as it cleans up its balance sheet, its FCF will climb even more. All of this adds up to make AT&T an excellent long-term investment, and we recommend investing now.
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