AT&T Eyes Earnings Release Amid Telecom Sector Optimism

Telecom stocks are gaining traction as investors increasingly seek stable, income-focused options ahead of the upcoming earnings season. Traditional telecom companies have seen an average increase of approximately 14.3% since the last reporting cycle, buoyed by a broader optimism in the sector. According to Statista, global telecom spending is projected to rise by about 4% this year, reaching around $1.42 trillion. This growing confidence has shifted attention to AT&T Inc. (T), which currently boasts a 4.25% dividend yield and is set to release its third-quarter results on October 22, 2023, before the market opens.

Analysts anticipate a year-over-year profit decline of approximately 10%, yet many are optimistic regarding continued growth in AT&T’s wireless and fiber services, which could mitigate challenges faced in its legacy business lines. The company has outperformed Wall Street estimates in three of the past four quarters, sustaining hopes for another positive report.

AT&T’s Recent Performance and Strategic Moves

AT&T, a major U.S. telecom provider, has evolved from the Bell System divestiture in 1982 and subsequent re-consolidation in the 1990s. The company generates recurring revenue through its extensive mobile and broadband services, supported by a robust network infrastructure. Over the last year, T stock has increased by 18.76% and has risen 13.86% year to date, reflecting effective management and improved cash generation.

Currently, the stock trades at a forward price-to-earnings (P/E) ratio of 12.83x, below the sector average of 13.98x. This indicates that investors may still perceive some execution risks despite the company’s stabilizing business model. The primary attraction remains its income potential, with an annual dividend of $1.11, yielding 4.21%, significantly higher than the sector’s average yield of 2.62%. The latest quarterly dividend of $0.278, paid on October 10, is comfortably positioned within a 50.11% forward payout ratio.

In the second quarter, AT&T reported revenues of $30.8 billion, with diluted earnings per share (EPS) at $0.62, compared to $0.49 the previous year. Operating income reached $6.5 billion, with net income at $4.9 billion, supported by $11.7 billion in adjusted EBITDA. The company achieved a solid cash flow of $9.8 billion from operations and $4.4 billion in free cash flow, an increase from $4.0 billion last year.

AT&T has also simplified its operations by divesting its remaining 70% stake in DIRECTV in July, allowing more resources for its 5G and fiber initiatives. In terms of customer growth, the company added 401,000 postpaid phone net customers, maintaining a low churn rate of 0.87%.

Innovations and Growth Strategies

Beyond dividends, AT&T is making significant strides in enhancing connectivity within urban infrastructure. Recently, AT&T and Boldyn Networks launched cellular service in New York City’s historic Joralemon Street tunnel, which connects the 4 and 5 subway lines. This initiative marks a critical step in Brooklyn’s wireless upgrade plans, with additional services planned for the crosstown G line.

The company is also innovating in customer service and sales models through a new partnership with Klarna, which allows technology brands to incorporate mobile plans directly into their applications. This platform enables customers to sign up quickly and manage their services seamlessly, while also reducing marketing costs for AT&T.

In addition to its technological advancements, AT&T is investing in community outreach. A collaboration with Digitunity worth $725,000 aims to provide approximately 13,200 individuals across Arkansas, Mississippi, and Louisiana with access to computers, internet service, and digital skills training. This initiative is designed to empower veterans, healthcare workers, and educators in underserved communities.

On the business front, AT&T is also enhancing its Office@Hand offerings with new tools such as RingCX and RingSense. These AI-based solutions aim to improve customer call management and feedback analysis, alongside AT&T’s fiber, 5G, and SD-WAN technologies, creating more effective and affordable communication tools for businesses.

As AT&T prepares for its earnings announcement, analysts maintain a positive outlook. The company expects service revenue to increase slightly by 2025, with mobility revenue anticipated to grow by approximately 3% or more, while consumer fiber broadband is projected to climb in the mid-to-high teens. The firm plans to invest between $22 billion and $22.5 billion this year, while still generating around $16 billion in free cash flow.

Analysts predict earnings per share between $1.97 and $2.07, with plans for a $4 billion stock buyback, of which around $1.3 billion has already been completed.

On October 16, analyst Laurent Yoon from Bernstein reaffirmed a “Buy” rating with a price target of $32, emphasizing that the market undervalues AT&T’s potential for stronger earnings. Similarly, Michael Rollins from Citi maintained a “Buy” rating, anticipating a stable quarter that showcases robust cash generation. Eric Luebchow from Wells Fargo echoed this sentiment on October 17, highlighting subscriber growth and fiber expansion as key drivers.

In conclusion, for investors focused on income, AT&T presents an attractive option as it approaches its earnings release on October 22. While the company may not exhibit high-growth characteristics, its combination of consistent operational execution, a 4.25% dividend yield, improving cash flow, and disciplined capital management positions it as a reliable dividend investment among large-cap telecoms. If quarterly results confirm stable margins and rising momentum in fiber services, AT&T’s shares could see an upward trend as the year closes.

On the date of publication, the author did not hold any positions in the securities mentioned in this article. For further information, please refer to relevant disclosure policies.