Stock Analysis - AT&T (T)


AT&T (NYSE: T) is a telecommunication giant that has been a stable and reliable dividend payer for more than fifty years. In the recent past due to the lack of earnings growth, management has turned to Acquisitions. In 2015 it acquired DirecTV for $49 billion. Recently it concluded the acquisition of Time Warner for $85 billion. With the effort to grow through acquisition the company ended up putting itself in a fragile position. It has accumulated way too much debt, and the dividend might not be safe if earnings decline. Some have questioned if AT&T’s acquisition of DirecTV was a mistake.

gray metal tower with accessories

Image Source: Unsplash

The Time Warner acquisition allowed the company to launch its streaming service. Including all of the Time Warner content. The lack of growth strategy the management has used and a large amount of debt has been the main drivers of the stock price. Today it has over $147.2 billion in net debt. This has crippled the free cash flow generation. It is also important to keep in mind that AT&T’s size doesn’t allow the company to grow faster. The company had a little over $189 billion in revenues. Bear in mind that countries like Greece and New Zealand GDP’s are close to that number at around $200 billion.

Q4 and FY20 Results

T financial results in the last quarter of 2020 were surprisingly positive. It managed to grow its post-paid phone customers by 1.5M the most since 2011. Additionally, it added 1M customers to their fiber broadband segment. Finishing the year with 41M US subscribers to its HBO content platform. AT&T ended 4Q with a loss, despite generating $27.5B in FCF in 2020.

AT&T Q4 Results

Source: AT&T

A decline in revenues across most segments is a bad signal. It can be attributed to COVID-19, and the challenges it created.

Elliott Management

Known in the past for its activist role in many companies. Elliot Management tried to pursue an activist approach, after taking a considerable stake in T. A letter to the board of directors was written, and their intentions of shaking management up were eventually unfruitful. They would divest their initial investment by the end of last year. The fact is that there might be some problems with T, in regards to management and some changes could be made to improve operations. In this case, the company has a considerable size, and it is not so easy to play the activist role. Elliott Management, led by billionaire Paul Singer, perhaps underestimated how difficult it would be to enforce any meaningful change in T.

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Disclosure: I have no position in any of the stocks mentioned.

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Carl Schwartz 2 weeks ago Member's comment

Good stuff, thanks.