AT&T (T) 23Q3 Update

AT&T reported 23Q3 GAAP EPS of $0.48, below last year’s $0.79 and also below my estimate of $0.55.  The primary cause of the shortfall vs. my estimate was a $604 million charge for impairments and restructuring that included a $450 million impairment charge against a satellite business in Latin America.  Excluding this and other specified items, non-GAAP EPS was $0.64, better than my estimate of $0.59.  Free cash flow was $5.2 billion in the quarter, slightly below my estimate of $5.3 billion.

Revenues of $30.4 billion were up 1% YOY.  Mobility revenues were up 2%, as growth in subscribers growth and postpaid phone ARPU, more than offset a decline in equipment volumes due to lower device volumes.  Mobility operating income increased 8.6% from lower equipment costs and associated selling expenses.  Postpaid phone net additions were 468,000 in the quarter.

Business Wireline revenues decreased 7.9% YOY due to lower demand for legacy voice and data services and streamlining of product offerings.  Operating income fell 43.6%.  Consumer Wireline revenues increased 4.6% YOY as gains in broadband more than offset declines in legacy voice and data services.  CW operating income increased 12.7%.  Fiber net adds were 296,000 in the quarter.  In Latin America, revenues increased 26.4%, due to favorable foreign exchange and higher equipment revenues.  Its operating loss narrowed to $29 million from $63 million.  Corporate costs increased 2.1%, in line with estimates.  Certain significant items (excluded in the calculation of non-GAAP earnings), increased from $204 million to $737 million, including the $650 million of impairments and restructuring costs.  Thus, GAAP operating income declined 3.8%.

Management raised its guidance for 2023 adjusted EBITDA growth from greater than 3% to 4.5% or greater.  It also now expects free cash flow of at least $16.5 billion vs. previous guidance of $16 billion.

Since my previous report, AT&T’s stock has delivered a total return of 10.7% vs. the S&P 500’s 0.3% loss.  With 23Q3 results largely on track, I am maintaining my performance rating of “1” (Buy) and price target of $18.00.  The price target equates to 8.2 times projected 2024 GAAP EPS of $2.21 and 7.0 times projected 2024 non-GAAP EPS of $2.58.

This is a summary of my recent update report on AT&T, Inc. (T). To obtain a copy of the full report, please reach out to me using the contact information provided below.

November 21, 2023 (Report originally published on November 16, 2023.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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