E Market Briefing For Wednesday, Nov. 25

Meanwhile . . analysts continue panning AT&T (T), falling-back on earlier stories suggesting an eventual inability to service debt or maintain the dividend (over 7% yield). Just this morning yet-another claimed HBO MAX wouldn't succeed, and lose talent and content. Suppose I suggest that investors consider rather the opposite, as characterized in an ongoing note from AT&T's CFO.

Senior Executive VP and CFO John Stephens, spoke about the momentum in postpaid wireless plans. AT&T was able to reduce churn in the third quarter of 2020 and drive adoption of higher-tier unlimited plans that include HBO Max.

Stephens said combinations of network and user demand for entertainment, would yield long-term value creation across AT&T's customer base. I concur, and note that (after months of negotiations), HBO Max's availability on 'Fire TV', which is Amazon's, and simultaneous release of "Wonder Woman 1984" on HBO and theaters (oh my, I actually had...Linda Carter .. original Wonder Woman .. as a neighbor in LA, way back in the day).

I expected that once production would start resuming (it is), and the Amazon (AMZN) deal got made, things would perk-up. AT&T expects 2020 full-year free cash flow of more than $26 billion. Dwelling deeper into capital allocation, Stephens said AT&T's dividend payout ratio for full-year 2020 will be in the high 50's%.

AT&T refinanced more than $60 billion of debt at historically low rates and has $30 billion debt due through 2025. A combination of higher free cash flow and lower-priced debt gives it the financial strength to invest in high-growth areas of fiber, 5G, and HBO Max. So, for conservative investors in my view, it's fine.

Stephens also said AT&T's integrated fiber strategy will improve connectivity for both consumer and enterprise markets and enhance its 5G network quality in a cost-efficient manner. I personally have AT&T fiber, and it's been great. It is also true that AT&T is generating savings from efficiencies, organizational alignments (Elliott Management put pressure on them), and more. I'm noting all this due to the uninformed negative comments on some TV channels that I seriously disagree with, and believe investors in this area will be fine. (We did not pay up, in fact we were bearish at 40 and bullish sub-30 and still are.)

It matters as AT&T saw traction in the third-quarter in mobility and broadband, and by doing so beat the consensus Bloomberg and others had for it. Another example: Broadband net adds of 158,000 surprised analysts expecting a net add loss of 73,000. Domestic HBO and HBO Max subscribers totaled more than 38M and 57M, exceeding its year-end target of 36 million subscribers. So I stand by my optimism every time 'T' drops down to the 27-28 area.

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