This article is about AT&T’s (NYSE:T) plans and predictions through the year 2023. AT&T should be in an excellent position to increase free cash flow and see more share price growth in the coming year. AT&T’s performance in the coming year looks good based on the recent comments made by company leaders at an investor conference and the updated financial guidance for 2022. Because of this, I keep my Buy rating for AT&T stock.
AT&T Key Metrics
Before judging how AT&T will do in the coming year, it is essential to look at its most recent quarterly financial results and updated full-year management guidance.
Regarding AT&T’s most recent quarterly financial results, the company’s actual non-GAAP adjusted earnings per share, or EPS, of $0.68 beat Wall Street analysts’ consensus bottom-line projections of $0.62 by a factor of +10%.
Also, consensus data from S&P Capital IQ shows that AT&T’s postpaid phone net adds (AT&T’s most important operating metric) came to about 708,000 in the third quarter of this year, which was +26% more than the sell-side consensus estimate of 564,000.
AT&T’s Q3 2022 financial results press release mentions three things about its financial guidance for FY 2022 that are important for the company’s near-term prospects.
The company’s non-GAAP EPS forecast for 2022 went from $2.42 to $2.46 to at least $2.50. Second, AT&T kept its previous prediction that wireless service revenue would grow by 4.5% to 5% in 2022 but stressed that it should reach “the upper end” of this range of 4.5% to 5%. Third, the company says it should “meet or beat” its other “financial commitments (guidance) for the year.” These include numbers for free cash flow, non-GAAP adjusted EBITDA, and total revenue growth.
In a nutshell, AT&T’s key performance indicators were great, giving investors hope that the stock will do well in 2023.
What AT&T Catalysts Do You Need to Watch Out For?
It’s important to keep an eye out for a few things that could cause AT&T’s rating to change.
One “key catalyst for AT&T” is “free cash flow for 2023 that is above expectations.”
In this section, I discuss other things that could help AT&T. One of them is that AT&T paid out dividends that were higher than expected.
The market thinks that AT&T will pay a full-year dividend per share of $1.12 for fiscal years 2023 and 2024, the same amount it paid for the fiscal year 2022. If T suggests in 2023 that it might raise dividends in 2024, this could make AT&T’s stock more valuable.
At the company’s recent Morgan Stanley’s (MS) European Technology, Media & Telecom Conference on November 17, 2022, T said that “do we raise the dividend” is one of the important capital allocation questions it will think about after its net debt-to-EBITDA ratio drops to 2.5 times. By fiscal 2024, S&P Capital IQ data show that AT&T’s net debt-to-EBITDA ratio will drop to 2.57 times. AT&T could hint at a return to dividend growth in 2024 in comments made in 2023 if it keeps making good progress in getting rid of its debt.
Another reason is that AT&T (NYSE:T) is still better than Verizon (NYSE:VZ), its main competitor.
I said that AT&T’s 708,000 net new postpaid phone customers in the third quarter of 2022 were a big deal. On the other hand, VZ only added about 8,000 postpaid phones in the last quarter. Kannan Venkateshwar, an analyst at Barclays (NYSE:BCS), thinks it will be hard for Verizon to get out of the problems it is facing soon.
Even though T did better than Verizon in the most recent quarter, AT&T still trades at a lower price than Verizon. According to valuation data from S&P Capital IQ, the market puts a consensus forward normalized P/E multiple of 7.5 times on AT&T and 7.8 times on Verizon. If AT&T keeps doing better than its main competitor VZ, it will be in a good position to close the valuation gap and eventually trade at a higher P/E multiple than Verizon.
Separately, it is also essential to look at how AT&T analysts’ opinions have changed, as this will significantly affect how its share price does in the future. In the next section, I discuss how sell-side analysts feel about AT&T’s shares in more detail.
What Do Analysts Think About T Stock?
Analysts are getting more and more optimistic about AT&T (NYSE:T).
In the last three months, 24 of the 31 Wall Street analysts who follow AT&T’s stock have raised their estimates for the company’s bottom line in FY 2022. Only two analysts decided to lower their 2022 EPS estimates for AT&T during the same time period.
In the same way, the average rating of sell-side analysts for AT&T went up from 3.47 on August 30, 2022, to 3.55 on November 27, 2022. A score of 1 means “Strong Sell,” while a score of 5 means “Strong Buy.”
The change in consensus earnings estimates and analyst ratings for AT&T backs up sell-side analysts’ positive view of the stock.
What Do People Think Will Happen in 2023?
AT&T’s stock price will go up to $23.13 or higher by the end of the following year, which would be a 21% gain. My new price target for AT&T is $23.13, based on a 9.0 forward P/E multiple and a normalized consensus EPS for FY 2023 of $2.57.
As this article says, AT&T’s (NYSE:T) three catalysts in 2023 will be higher-than-expected free cash flow the following year, a sign of a dividend increase in 2024, and better-than-expected performance than VZ.
AT&T said at Morgan Stanley’s European Technology, Media & Telecom Conference in the middle of November 2022 that it thought its results would be better in 2023 than in 2022. When asked about its plans for 2023, AT&T said that its “wireless subscriber base” would grow faster than expected, that its “ARPUs” would be higher than expected, that it would save money on “transformation costs,” and that its “5G costs” would go down.
Based on how AT&T did in Q3, how it plans to do in 2022, and what recent management has said, I think all three of AT&T’s re-rating catalysts will happen. I have faith in AT&T’s 2023 forecast. The market consensus is that AT&T’s free cash flow will rise from $14 billion in FY 2022 to more than $18 billion in FY 2023.
Should I Buy AT&T Stock, Sell it, or Keep it?
AT&T is still rated as a Buy stock. AT&T’s financial and stock price performance should improve over the coming year. AT&T’s free cash flow should grow a lot in 2023, and the company’s P/E ratio should change to match predictions for dividend growth in 2024 and the fact that AT&T will continue to do better than Verizon.
Featured Image: Pexels @ Viridiana O Rivera