AT&T (T): Pre-Earnings Analysis for Investor Decision-Making

AT&T Inc. (T) is all set to disclose its fiscal fourth quarter results (ended December 2023) on Wednesday, January 24, 2024. Wall Street expects T’s revenue for the fourth quarter to increase marginally year-over-year to $31.46 billion, while its EPS for the same quarter is projected to come in at $0.56, reflecting an 8.6% year-over-year drop.

Despite surpassing its EPS and revenue estimates for the third quarter, the company experienced a significant decline in profits, while its revenue showed a modest year-over-year increase dampened by lower revenues from its wireline business.

T’s revenue from its wireline business amounted to $5.20 billion, down 7.9% year-over-year. This decline was attributed to lower demand for legacy voice and data services, along with efforts to simplify the product portfolio within the wireline segment.

Meanwhile, the company reported an operating expense of $24.60 billion, compared to $24 billion in the same quarter of the previous year. This increase is attributed to higher severance and restructuring charges, along with persistent inflationary cost escalations during the third quarter of 2023.

Nevertheless, T’s board of directors, on December 13, 2023, declared a quarterly dividend of $0.28 per share payable to its shareholders on February 1, 2024. The company’s annual dividend of $1.11 translates to a 6.61% yield on the prevailing prices, while its four-year average dividend yield is 7.19%.

While T’s attractive dividend yield might bode well for investors, it's worth noting that the company’s dividend payouts have declined at CAGRs of 10.9% and 6.1% over the past three and five years, respectively.

Despite the challenging fundamentals, T’s is actively pursuing opportunities in the 5G technology space, which is evident from its major collaboration with Ericsson on December 4, 2023. T unveiled its intention to spearhead the commercial deployment of an open radio access network (Open RAN) in the United States through its five-year partnership with Ericsson.

This multi year commitment to Open RAN comes at a pivotal moment in the 5G innovation cycle, positioning T to swiftly capitalize on upcoming wireless advancement for the development of energy-efficient, sustainable networks and an enhanced user experience.

T’s shares have surged 13.8% over the past six months and 9.2% over the past three months to close the last trading session at $16.80.

Here are the financial aspects of T that could influence its performance in the near term:

Mixed Financials

For the fiscal third quarter, which ended on September 30, 2023, T’s total operating revenue increased 1% year-over-year to $30.35 billion. However, its net income declined 40.2% from the year-ago value to $3.83 billion, while its adjusted EPS came in at $0.64, down 5.9% year-over-year.

On the other hand, during the same quarter, the company’s cash and cash equivalents stood at $7.54 billion, up 103.7% compared to $3.70 billion as of December 31, 2022.

Mixed Analyst Estimates

The consensus revenue estimate of $121.85 billion for the fiscal year ended December 2023, which represents a marginal improvement year-over-year. Meanwhile, the consensus EPS estimate of $2.44 for the same period reflects a 5.2% year-over-year plunge.

Mixed Profitability

T’s trailing-12-month levered FCF margin of 12.21% is 55.2% higher than the 7.87% industry average. Likewise, its trailing-12-month EBIT margin of 21.72% is 157.4% higher than the industry average of 8.44%.

On the other hand, the stock’s trailing-12-month cash per share of $1.05 is 30% lower than the industry average of $1.51. Additionally, its trailing-12-month asset turnover ratio of 0.29x is 41.3% lower than the industry average of 0.50x.

Mixed Valuation

In terms of forward EV/Sales, T’s 2.39x is 26.5% higher than the industry average of 1.89x. The stock’s forward non-GAAP PEG multiple of 27.40 is significantly higher than the industry average of 1.67.

However, its forward non-GAAP P/E ratio of 6.90x is 55.3% lower than the 15.43x industry average. Furthermore, its forward EV/EBITDA ratio of 6.72x is 22.7% lower than the 8.70x industry average.

POWR Ratings Exhibit Uncertainty

T’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct 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 C grade for Value, justified by the mixed valuation metrics. Likewise, the stock’s C grade for Sentiment is in sync with its mixed analyst estimates for the fiscal year ended December 2023. Moreover, T’s C grade for Quality is consistent with its mixed profitability metrics.

In the Telecom - Domestic industry, T is ranked #8 out of the 17 stocks.     

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, and Stability. Get all ratings of T here.

Bottom Line

While T’s strategic partnerships and high dividend yield may attract investors, the company's mixed fundamentals and analyst estimates raise concerns over its prospects. Therefore, as the company gears up to announce its fourth-quarter results tomorrow, it might be best to consider waiting for an ideal entry point for investing in the stock.

How Does AT&T Inc. (T) Stack Up Against Its Peers?   

While T has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Telecom - Domestic industry: InterDigital, Inc. (IDCC), Ooma, Inc. (OOMA), and Spok Holdings, Inc. (SPOK), with B (Buy) ratings. For exploring more Telecom - Domestic stocks, click here.    

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T shares were trading at $17.17 per share on Tuesday afternoon, up $0.37 (+2.20%). Year-to-date, T has gained 3.99%, versus a 1.69% rise in the benchmark S&P 500 index during the same period.

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