AT&T Inc.: More Upside for AT&T Stock?
Despite a bumpy ride, AT&T Inc. (NYSE:T) stock performed solidly in 2016, with a return of 23% vs. the Dow’s 13% gain. Some of the enthusiasm appears to have faded over the past month, however, as investor nervousness seems to be increasing over the company’s proposed mega-acquisition of Time Warner Inc (NYSE:TWX). Specifically, the concern is whether the Trump administration will block it or not.
Of course, a prudent investment case for T stock should never rely on a single catalyst needing to happen—particularly when President Trump is involved—so it’s far more important for us to assess AT&T’s fundamentals, growth prospects, and valuation as they stand, without Time Warner.
With that in mind, looking into AT&T’s freshly released fourth-quarter results seems like a sensible first step.
For the quarter, AT&T posted earnings per share (EPS) of $0.66, right in line with consensus estimates. Revenue came in at $41.8 billion, representing a slight decline of 0.7% and just missing the average analyst estimate of $42.04 billion. Meanwhile, the company’s full-year outlook also met expectations: for 2017, the company now sees EPS growth in the mid-single digits and revenue growth in the low-single digits.
“2016 was a transformational year for AT&T, one in which we made tremendous progress toward our goal of becoming the global leader in telecom, media and technology,” said Randall Stephenson, chairman and chief executive officer of AT&T. “We launched DIRECTV NOW, our innovative over-the-top streaming service. Our 5G evolution plans and improved spectrum position are paving the way for the next-generation of super-fast mobile and fixed networks.” (Source: “AT&T Reports Fourth-Quarter and Full-Year Results; AT&T Meets Full-Year Guidance With Strong Customer Growth,” AT&T Inc., January 25, 2017.)
So while the company didn’t exactly shoot the lights out with its fourth-quarter results and guidance, it didn’t bomb on them either—something that can’t be said for its telecom counterpart, Verizon Communications Inc. (NYSE:VZ).
Winning in Wireless
As we reported, VZ stock slumped earlier this week on soft full-year guidance, but mainly due to an alarming 61% decline in postpaid wireless subscriber additions. AT&T didn’t hit a home run on this front, either, but its net 520,000 postpaid additions for the fourth quarter were at least relatively flat from the year-ago period.
Additionally, AT&T’s postpaid churn rate for the fourth quarter (the percentage of subscribers that cease using the services) dropped from 1.07% to 0.98% year-over-year, while Verizon’s increased by more than 10 basis points over the same period.
So while Verizon’s wireless network continues to lead the space in quality, it’s AT&T’s that seems to be steadier. And stability is particularly important when dealing with telecom stocks, which investors typically buy primarily for their fat dividends.
Of course, that begs the question: is T stock and its dividend worth owning at this point? I certainly think so.
The Bottom Line on T Stock
It’s easy to get caught up in the intrigue surrounding AT&T’s proposed purchase of Time Warner, but as income-oriented investors, I wouldn’t focus on it too much. Sure, Time Warner would give AT&T significant content and scale advantages, but it would be far from devastating if the deal didn’t go through, either. After all, AT&T is paying a hefty $84.0-billion price tag for TWX.
I’m not saying the acquisition won’t be a game-changer for AT&T, but I’d prefer to focus on the knowable instead: AT&T stock’s dividend is yielding a delicious 4.7% at the moment and, more importantly, is supported by massive free cash flow, as well as a stable wireless business. And if that doesn’t convince you over the safety of T stock’s dividend, maybe the company’s record of 31 consecutive years of dividend increases will.
In other words, T stock looks clearly bullish, no matter what the odds of a TWX acquisition.
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
Sign up to receive our FREE Income Investors newsletter along with our special offers and get our FREE report:
5 Dividend Stocks to Own Forever
This is an entirely free service. No credit card required. You can opt-out at anytime.
We hate spam as much as you do.