AT&T (T) 23Q4 Update

AT&T reported 23Q4 GAAP EPS of $0.30, compared with last year’s loss of $3.20.  My estimate was $0.55.  The shortfall vs. my estimate was due to a $589 million impairment charge, lower gross margin, higher SG&A expense and a $1.7 billion actuarial loss on pensions.  These negative factors were partially offset by a lower than anticipated tax rate.  Non-GAAP EPS was $0.54, below last year’s and my estimate of $0.61.  Free cash flow was $6.4 billion in the quarter, topping my estimate of $6.2 billion.

Management issued 2024 non-GAAP EPS guidance of $2.15-$2.25, below 2023’s $2.41.  Organic growth and other factors will add $0.06-$0.16 to non-GAAP EPS, but this will be more than offset by $0.17 of higher (non-cash) depreciation expense, mostly associated with its open RAN initiative, $0.07 of higher (non-cash) pension and OPEB costs and $0.08 of lower capitalized interest and DIRECTV equity income.

AT&T’s stock sold off modestly on the earnings announcement, presumably in response to the 2024 guidance.  But it bounced back sharply over the next six trading sessions, breaking briefly above $18 before falling back to an intraday low of $16.42 on Feb. 22.  It has since drifted steadily higher, closing at $17.33 yesterday.  Since its October lows, AT&T’s stock has made a series of higher highs and higher lows; so the trend remains positive (even though the road back above $18.16 looks somewhat challenging at this time).

Based upon that performance trend, I am raising my price target to $19 (from $18).  The new price target equates to a forward multiple of 8.6 times projected 2025 GAAP EPS of $2.21 (or 7.9 projected 2025 non-GAAP EPS of $2.34).  It also represents a potential a potential 12-month return of 16%, including its 6.4% dividend yield.  Consequently, I am maintaining my performance rating of “1” (Buy) on AT&T’s stock.

Key risks include the continued financial health of AT&T’s customers, U.S. consumers and businesses, and potential disruptions to the economy perhaps through unforeseen events such as cyberattacks.  (A recent half-day wireless service disruption caused by the “incorrect application of a process” should not result in any meaningful or lasting damage to its franchise.)  Revenue growth expectations are modest in 2024 and concentrated primarily on 5G and fiber, where there are still good opportunities to expand.  AT&T is also keenly focused on reducing operating costs. My 2025 projections are more aggressive but seem achievable.

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.

March 12, 2024 (Report published on the same date.)

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

© 2015-2024 by Stephen P. Percoco, Lark Research.   All rights reserved.

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