AT&T Inc. (T) has finally moved past its long sad foray into the media business; the company has also moved past multiple other asset divestitures and a substantial dividend cut in the last year, suggests Joseph Bonner, an analyst with Argus Research.
Investment spending on 5G and fiber broadband networks in addition to debt reduction are its critical strategic priorities in the near term, toward creating the underlying framework for sustainable long-term growth.
AT&T’s wireless business has been a star in 2022 as the company has added substantial numbers of subscribers despite a price increase. Although it has not gained as many subscribers as industry leader T-Mobile, it has done better than Verizon’s subscriber losses and anemic numbers.
The company has gained traction in wireless subscriber acquisitions due to promotions over the last year. While management may now be throttling back promotions, wireless remains the company’s key revenue and profit driver.
The wireless business may remain resilient in a recession, given the value subscribers put on wireless connectivity though a recession would likely hurt its commercial enterprise business.
AT&T shares have begun to recover from the market pummeling the company took in response to the company’s strategic about-face on entertainment, the WarnerMedia spinoff, and the dividend cut though valuation remains below historical norms and the peer average.
While telecoms are typically seen as safe havens in turbulent economic times, in AT&T’s case its focused debt reduction and refinancing in the last few years has made it more resilient in the current macro-environment.
AT&T is trading below its historical average range for trailing enterprise value/EBITDA (6.8 versus a range of 7.5-8.7), though historical metrics may be of limited value following recent acquisitions and divestitures.
Close rival Verizon (VZ) has a multiple of 6.7 and the peer average is 7.0. AT&T’s forward enterprise value/EBITDA multiple of 6.7 is 9% above the peer average, at the average premium over the last two years. We are raising our rating on AT&T to "buy" to a target price of $24.
