EC AT&T Stock: Why It’s A Buy In 2020

Shares of telecommunications giant AT&T Inc. (T) have enjoyed a meaningful rebound in 2019, after a few difficult years. After peaking at $43 in the summer of 2016, shares of AT&T declined to under $30 by the end of 2018. However, the stock has surged 33% year-to-date, outperforming the S&P 500 Index so far this year. AT&T has provided investors with an even stronger return in 2019 after including dividends.

AT&T has long been an impressive dividend stock, with a high dividend yield above 5% and a long history of steady annual increases. The company has increased its dividend payout for over 30 years in a row, making it a member of the prestigious Dividend Aristocrats, a group of S&P 500 stocks with at least 25 consecutive years of dividend increases.

AT&T’s resurgence this year is the result of its transformation into a content giant and diversified telecom conglomerate. In this update, we’ll take a look at AT&T’s recent developments as well as the value proposition the stock offers, as determined by our Sure Analysis Research Database, where we rank stocks based upon total expected returns.

AT&T continues to rank highly among the hundreds of stocks in our coverage universe. We believe that the stock remains a strong buy for 2020 and beyond, due to its high expected returns.

Company Overview and Recent Events

AT&T traces its roots back to 1876 when Alexander Graham Bell invented the first version of the telephone. In its current form, AT&T is the result of a tangled web of mergers and spinoffs that have taken place since 1984, when the former AT&T spun off its local telephone operations but retained its long-distance, R&D and manufacturing segments. SBC Communications was born from this and with it, the modern AT&T was as well.

SBC acquired several smaller telecommunications players, including what was left of AT&T in 2005, creating the company we know today. Since then, AT&T has purchased Cingular Wireless, Cricket Wireless, lusacell, and Nextel Mexico, respectively, to add to its core business. In addition, it has diversified away from phone service with its DirecTV acquisition in 2015, and the 2018 acquisitions of AppNexus and Time Warner Inc.

Today, AT&T is the largest communications company in the world, operating in four distinct business units: AT&T Communications, which provides mobile, broadband, video and other communications services to more than 100 million U.S. consumers and more than 3 million businesses; WarnerMedia which includes Turner, HBO, and the Warner Bros. studio; AT&T Latin America which offers pay-TV and wireless service to 11 countries; and its advertising platform Xandr. The company generates roughly $170 billion in annual revenue. AT&T’s market capitalization today is nearly $280 billion, making it a mega-cap stock.

AT&T reported third-quarter earnings on October 28th. For the quarter the company generated $44.6 billion in revenue, down from $45.7 billion in the year-ago quarter, as declines in legacy wireline services, WarnerMedia, and domestic video were partially offset by growth in strategic and managed business services, domestic wireless services and IP broadband.

Source: Investor Presentation

The core Communications Segment led the way for AT&T, particularly in the Mobility and Entertainment Group businesses. AT&T’s Mobility and Entertainment segments both generated EBITDA margin expansion for the quarter. Wireless service revenue increased 0.7% last quarter and 1.9% through the first three quarters, driven by 255,000 phone net adds. AT&T also reported a low postpaid churn rate of 0.95% for the quarter.

This led to strong financial performance overall. Net income came to $3.7 billion or $0.50 per share versus $4.7 billion or $0.65 per share prior. On an adjusted basis, earnings-per-share equaled $0.94 compared to $0.90 previously for a 4.4% increase. Adjusted earnings-per-share increased 0.4% year-over-year, resulting in a slightly higher adjusted operating income margin.

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Charles Howard 4 weeks ago Member's comment

I had written off AT&T years ago but I've been surprised as the company has rebounded. Now I wish I hadn't sold $T back then.