AT&T reported 23Q2 results that slightly exceeded guidance and consensus estimates. The results also raised confidence that the company can achieve its 2023 free cash flow target of $16 billion.
Its key end markets, prepaid wireless service and broadband, have matured in many geographies, limiting its growth potential and potentially intensifying competition. The company is responding by focusing on cutting operating expenses, reducing its real estate footprint and replacing legacy copper infrastructure. In 23Q2, it achieved its $6 billion cost savings target and aims to realize $2 billion more over the next 3 years.
In 2024, AT&T will complete the rollout of mid-range C-band spectrum, bringing faster connectivity, greater bandwidth, lower latency and new use cases to its 5G mobility network. It is also expanding its broadband coverage to win new subscribers and increase the network’s data capacity. Its Gigapower joint venture (with Blackrock) aims to bring broadband to areas outside of its service territory, potentially tapping $42.5 billion of funding from the Federal government to expand affordable broadband service.
A WSJ exposé on lead-sheathed cables has raised concerns that AT&T (and its peers) may face billions of dollars in remediation costs. However, the company asserts that these cables, which have been in use for decades, are safe. The EPA and certain state and local governments are now examining the issue. AT&T may have to spend more to remediate certain problem areas, but it is unlikely, in my view, that such costs will be devastating to the company and its shareholders.
AT&T’s stock has fallen 21.5% YTD vs. the S&P 500’s 19.3% gain. Most of the selloff occurred after 23Q1 results on disappointing free cash flow which raised concerns about its leverage and dividend sustainability. The stock took another dive after the WSJ exposé, but showed little response to 23Q2 results that put the company back on track to meet its 2023 free cash flow objective of $16 billion.
I am initiating coverage of AT&T with a Buy rating and price target of $18. The price target is based upon an assumed one-year forward P/E multiple of 8 times projected 2024 GAAP earnings of $2.23 and 7 times projected 2024 non-GAAP earnings of $2.51. From the current share price of $14.45, my $18 target price equates to a potential total return of 32%, including the stock’s 7.7% dividend yield.
This is a summary of my recent report on AT&T Inc. (T). To receive a copy of the full report, please reach out to me using the contact information provided below.
July 31, 2023
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.