Since announcing it would merge its Warner Media content empire into Discovery (NASDAQ:DISCA) in May, AT&T (NYSE:T) stock is down nearly 28%. T stock has had a small bounce in this month as bargain hunters are hoping the company can return to prominence once it’s fully
Just don’t buy it for that reported 8% yield. Once the WarnerDiscovery deal goes down, so does the dividend.
What you’ll be left with will be revenue of maybe $135 billion and earnings of $3.16 a share If it can hit those figures, AT&T stock is a “buy” at its current $23 a share.
The question is whether it can hit those figures.
Long Time Coming
At its Dec. 7 closing price, AT&T is worth just $164.8 billion. That sounds super cheap for a company that brought in $171 billion in 2020 revenue, and $43 billion in operating cash flow. But there was $177 billion in long-term debt on the books at the end of September. That makes the enterprise value of the company $343 billion.
Optimists may note that the company has earned $2.07 a share in just the first three quarters of 2021. The price-to-earnings ratio is inflated by last year’s fourth quarter loss, nearly $14 billion or $1.95 a share. The loss came from , which was sold in August .
DirecTV was one of three hammer blows to earnings, most of which originated with former CEO Randall Stephenson. The satellite TV giant had cost $67 billion. Its value when sold was $16.75 billion.
The purchase of Time Warner for $85.4 billion is now widely seen as a mistake. AT&T has also lost wireless market share since T-Mobile (NASDAQ:TMUS)
The Road to Wireless
The WarnerDiscovery deal will eventually be done, CEO John Stankey reassured shareholders Objections by some Democrats pale in comparison to the full-throated Justice Department fight against Time Warner’s acquisition, a fight the government
AT&T will get in the new company. If Discovery CEO can deliver growth, AT&T shareholders will benefit, either directly through their AT&T stock or through shares in the spin-off.
That is still a big if. The company’s streaming operation, HBO Max, faces huge competition from Netflix (NASDAQ:
NFLX), Amazon (NASDAQ:AMZN) and Walt Disney (NYSE:DIS), which each have over 100 million subscribers. HBO Max has The cable operations are also suffering from cord-cutting, while the CNN News operation deals with a scandal that forced it to fire
The WarnerDiscovery deal will eventually cut AT&T revenue by about $30 billion and debt to $130 billion. That’s less than the $166 billion in debt held by Verizon Communications (NYSE:VZ) at the end of September, but a lot more than T-Mobile’s $99 billion.
AT&T needs all the financial firepower it can get. It spent on the recent C-Band spectrum auction and is doubling down on AT&T’s capital budget for 2021 is estimated at
The Bottom Line on T Stock
If I had any confidence in AT&T management, I’d buy T stock in a heartbeat.
The problem is I don’t. The only reason to buy the stock in the short-term is that it’s so cheap you figure some other fool will buy it for more.
In the longer run, AT&T is still gambling that its spectrum hoard, and the , will deliver growth. That’s not a bad bet. This is a stock for a young, conservative investor speculating on that long term.
On the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
has been a financial and technology journalist since 1978. Just in time for the holidays he has at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at . He writes a Substack newsletter, , which covers technology, markets, and politics.
