Telecommunications names are often seen as defensive in durations of financial stress, however that hasn’t performed out just lately. Can AT&T Inc.’s upcoming earnings report assist change the tone?
AT&T’s inventory
T,
+1.27%
is recent off its worst quarterly efficiency in 20 years, and Cowen & Co. analyst Gregory Williams notes that the shares have been “bleeding ever since” the wi-fi firm minimize its cash-flow outlook three months in the past. The corporate additionally disclosed that clients had been taking barely longer to pay their wi-fi payments in that second-quarter report, one other situation that has weighed on the inventory, in keeping with Morgan Stanley’s Simon Flannery.
What might assist flip issues round? Cowen’s Williams mentioned traders might reply higher to indicators of “constant execution” and visibility into the 2023 free-cash-flow outlook when the corporate posts outcomes Oct. 20, although he additionally mentioned it could “take just a few good quarters for the inventory to work.”
The cash-flow situation is of key curiosity to traders who worth the corporate’s hefty dividend, because the inventory yields 7.4%.
“With an investor base that’s largely centered on the corporate’s dividend, AT&T’s money shortfall has raised investor considerations a few potential dividend discount,” wrote Truist Securities analyst Greg Miller, although he mentioned that the corporate’s free-cash move for subsequent yr ought to “greater than cowl its dividend funds and permit for paying down its debt.”
Whereas Wall Road may also be looking forward to commentary on AT&T’s buyer fee tendencies, Chief Govt John Stankey addressed the subject at a mid-September investor convention.
“I haven’t seen any additional deterioration of what we noticed earlier within the yr and a few extension on fee cycles,” he advised traders at a Goldman Sachs convention, including that “typically talking, plainly individuals who wish to work can work, they usually’re capable of pay the payments.”
AT&T earnings may also function an early indicator of how Apple Inc.’s
AAPL,
+2.35%
iPhone 14 carried out — and present how the telecommunications big was capable of capitalize on the launch. All three large wi-fi gamers had been pretty promotional within the quick aftermath of Apple’s iPhone 14 unveiling, however wi-fi offers is usually a blended bag for the carriers. On one hand, they current a possibility for wi-fi corporations to herald new clients and retain present ones at a time when pleasure for brand spanking new telephones is excessive, however in addition they come on the expense of margins since they characterize reductions to shoppers.
The promotional theme isn’t new to the most recent iPhone cycle. “AT&T’s efficiency and progress in mobility have been strong — main the trade with 800K postpaid telephone web provides in 2Q, nearly double our expectations,” wrote Oppenheimer’s Timothy Horan in a latest observe to purchasers. “Nonetheless, secular pressures on legacy wireline have offset a lot of this progress, and it has had very excessive handset subsidies which together with excessive [capital expenditures] have pressured [free-cash flow] and will proceed to take action.”
AT&T’s administration staff, nonetheless, has downplayed the affect of promotions on the corporate’s wi-fi progress, with Stankey saying on the Goldman convention that the corporate has additionally benefited from higher traction for its public-sector enterprise. Moreover, he mentioned, AT&T has adopted a extra simplified array of wi-fi plans that has allowed the corporate to drag again on promotional spending whereas attracting higher yields on that advertising cash.
Listed below are the numbers to observe for when AT&T posts outcomes Thursday.
What to anticipate
Income: Analysts tracked by FactSet mannequin $29.84 billion in income for AT&T. The corporate posted $39.9 billion in income within the year-earlier third quarter, although that whole contains contributions from the corporate’s WarnerMedia enterprise and different areas which are not a part of the corporate.
In keeping with Estimize, which crowdsources projections from hedge funds, teachers and others, the common estimate requires $29.94 billion in income.
Earnings: The FactSet consensus requires 61 cents in adjusted earnings per share, whereas these polled by Estimize count on 62 cents. AT&T posted 66 cents in adjusted earnings per share in the identical interval final yr, although that quantity contains outcomes from enterprise areas which are not a part of AT&T.
Inventory motion: AT&T shares have fallen following three of the corporate’s previous 4 earnings studies. The inventory is off 27% over the previous three months and down 19% up to now this yr. The S&P 500
SPX,
+2.72%
is down 7% on a three-month foundation and off 25% on the yr.
Of the 30 analysts tracked by FactSet who cowl AT&T’s inventory, 9 have purchase scores, 18 have maintain scores and three have promote scores, with a mean worth goal of $20.38.