https://seekingalpha.com/article/4476055-att-stock-finally-gets-deserved-break
6 replies (most recent on top)
https://www.zacks.com/stock/news/1848995/are-options-traders-betting-on-a-big-move-in-att-t-stock?cid=CS-YAHOO-FT-tale_of_the_tape|options-1848995
Something like this might put a dent in that cash flow
https://www.foxnews.com/media/cell-phone-radiation-devra-davis-fcc
"AT&T has roughly $150 billion in long-term debt, costing it roughly $7 billion in annual interest, through an incredibly balanced maturity profile. For a company that post Time Warner will be generating $20 billion in post interest FCF and passing off ~$50 billion of that debt, that represents an incredibly management profile. "
(150/20)* 2=15 years to pay off the debt if half of the cash flow is used for that.
Market Cap 177.24B -150B(long term debt)= 27.24B/7.141B(total number of shares) = $3.82 per share
not anywhere close to the current stock price and that data is from projected data
WoW! Great to hear all major issues are behind us. Now let's get to work and return this company to its former greatness. Great job Stankey, I never thought you could get this done, congrats!
I wonder how much morgan stanley will profit after the merger with discovery
The only winner in randall and stankeys spending or-y is the big banks and law firms
Its long time to clean house starting with poppinfresh, chow and arroyo
Poppinfresh talked about wireless two weeks ago and tanked the stock further
Heres to 2021 with some new leadership
AT&T stock's collapse balanced out after ratings upgrades and supports from various agencies.
The company's Time Warner spin-off is presenting an overhang on the stock, however, it's also an undervalued part of the business.
The company's debt profile, investors' consistent fear, is something manageable for the company. It doesn't even need to roll over debt.
The company has the ability to generate double-digit shareholder rewards going forward, and we see the recent punishment is the bottom.
AT&T (NYSE: T) has seen its share price increase ~5% over the past week, reversing a consistent downtrend. The reversal was based on Morgan Stanley turning bullish on the stock, arguing that investors were undervaluing the post Time Warner standalone business and its ability to outperform in the market. As we'll see throughout this article, AT&T has several incredible businesses at a low price.
AT&T Ratings Upgrade
AT&T recently had its best day in more than a year, stemming the flow of the downturn, and increasing more than 7% on the back of an upgrade from Morgan Stanley. The investment bank argued that the market is currently waiting for the Time Warner + Discovery (NASDAQ:DISCA) deal, dragging down the share price that should see increased optimism as the deal moves forward.
Citigroup itself also said that they see the Time Warner + Discovery combination as having the potential to double in value, given the combined FCF position. That indicates that something that's currently being valued at roughly $5.5 per AT&T share has the potential to rise to $10 per AT&T share or more.
That's significant for a company currently trading at less than $24 / share, and the ratings upgrade is one that we strongly agree with. An increased movement in the environment to recognize this value will, in our opinion, stem the tide of the recent downturn.
AT&T Debt Maturity Profile
At the same time, investors commonly view AT&T's largest risk as its debt maturity profile. We think the market has overblown this. It doesn't matter that AT&T has more debt than any other S&P 500 company as long as they can comfortably service it and it doesn't threaten their ability to drive shareholder rewards.
AT&T has roughly $150 billion in long-term debt, costing it roughly $7 billion in annual interest, through an incredibly balanced maturity profile. For a company that post Time Warner will be generating $20 billion in post interest FCF and passing off ~$50 billion of that debt, that represents an incredibly management profile.
In fact, there's not a single year where AT&T's FCF isn't at least 2x its debt maturities for the year showing no need for the company to roll over debt, should it choose to do so. The company's balanced debt maturity profile is also met with a balanced interest rate profile with the company not having any arbitrarily low interest short-term debt.
With current interest rates, rolling over debt has a minimal risk. While we feel there's other avenues the company could deploy its capital, it's worth noting that simply repurchasing debt as it comes due until 2030 will allow the company to repurchase ~70% of its post-Time Warner debt, save $2 billion in annual FCF, and leave it with $50 billion in FCF for the decade (after dividends as well).
The takeaway here is that AT&T's debt load is very manageable and not a threat.
AT&T Time Warner Value
As discussed above, major banks feel that Time Warner is worth more than the market's currently valuing it at. We agree, as discussed in more detail here, feeling that as AT&T's share price has dropped it's pressured the combined company.
The original 2020 combined revenue for the company was expected to be $39 billion. By 2023E it's expected to be $52 billion and for 2022 the company will already be in the mid-$40s billion given strong DTC business performance. 2023E will likely have combined revenue near estimates, although there might be some integration pains.
The company is expected to hit at least $14 billion in adjusted EBITDA with ~60% FCF conversion. Deleveraging is expected to be rapid going into 2024 with FCF at almost $9 billion. From ~$60 billion in debt it'll be rapid. Time Warner, post debt reduction could have an almost $100 billion value, making the AT&T stake much more than the $35 billion it's valued at.
Currently, the market is valuing a company that in 2024 will have $40 billion in long-term debt and $9 billion in FCF at $35 billion.
AT&T Shareholder Return Potential
AT&T has substantial potential to generate continued shareholder returns highlighting the company's value.
AT&T has the ability to drive significant shareholder rewards from its core businesses. The company's wireless business is continuing to expand and see increasing net adds despite the potential for competition. This business is supported by overall 5G business growth which is helping the company despite the risk of competition.
The company's new focus on the fiber business is also performing well. Not only is penetration increased but so is the number of potential sites. The company expects the number of potential sites for customers to attach to double over the next several years while the company continues increasing its market share.
Each 1.5 million customers here represents roughly $1 billion in additional revenue and the potential for increased FCF. The company is already heavily undervalued with $20 billion in post spin-off FCF (~20% FCF yield) and the continued growth potential shows its long-term value. The one downside is it hasn't guided how it plans to spend this new FCF.
Given management's history, that could present a risk.
AT&T Risk
AT&T has very minimal risk in our opinion. The single largest risk to the company in our view, besides the Time Warner acquisition not closing and the uncertainty from that, is that the company has a new massive competitor in T-Mobile (NASDAQ:TMUS). DISH (NASDAQ:DISH) might become a competitor as well. These new competitors could hurt the company's main cash flow source.
Conclusion
AT&T has a unique portfolio of assets. The company has been consistently punished by the market, but that doesn't make it a bad investment. Recent ratings upgrades help highlight how undervalued the company is as an investment. The company's Time Warner division alone is ~40% of the company's value.
The company has significant cash flow potential outside of this. With $100 billion debt at our view for a fair Time Warner valuation, its current market capitalization is ~$100 billion. That $200 billion EV is earning $20 billion in FCF and a substantial part is debt that can be paid down. That highlights how undervalued AT&T is.