Equity research: AT & T - TheStreet Quant Ratings

Jan. 16, 2021 

Here is the link. 

RECOMMENDATION

We rate AT&T INC (T) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

HIGHLIGHTS 

Net operating cash flow has slightly increased to $12,123.00 million or 6.44% when compared to the same quarter last year. The firm also exceeded the subsector average cash flow growth rate of -10.59%. 

The gross profit margin for AT&T INC is rather high; currently it is at 53.14%. Regardless of T's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 6.65% trails the subsector average. 

Regardless of the drop in revenue, the company managed to outperform against the subsector average of 5.9%. Since the same quarter one year prior, revenues slightly dropped by 5.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share. 

AT&T INC's earnings per share declined by 22.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, AT&T INC reported lower earnings of $1.90 versus $2.87 in the prior year. This year, the market expects an improvement in earnings ($3.17 versus $1.90). 

The company, on the basis of change in net income from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Telecommunications subsector average. The net income has decreased by 23.9% when compared to the same quarter one year ago, dropping from $3,700.00 million to $2,816.00 million.

SUBSECTOR ANALYSIS 

AT&T INC falls within the Information sector and the Wired and Wireless Telecommunications Carriers industry group of the North American Industry Classification System or NAICS. More precisely, a significant portion of company activities involve Wireless Telecommunications Carriers (except Satellite). 

TheStreet Quant Ratings is currently tracking 553 companies in the Information sector that total around $12,629 billion in market capitalization as well as $2,829 billion in annual sales. 

The Telecommunications subsector accounts for 36.1% of those revenues.

Industries in the Telecommunications subsector group establishments that provide telecommunications and the services related to that activities such as telephony, including Voice over Internet Protocol (VoIP); cable and satellite television distribution services; Internet access; and telecommunications reselling services. The Telecommunications subsector is primarily engaged in operating and/or providing access to facilities for the transmission of voice, data, text, sound, and video. Transmission facilities may be based on a single technology or a combination of technologies. Establishments in the Telecommunications subsector are grouped into three industry groups. The first two are comprised of establishments that operate transmission facilities and infrastructure that they own and/or lease, and provide telecommunications services using those facilities. The distinction between the first two industry groups is the type of infrastructure operated like wired, wireless, or satellite. The third industry group is comprised of establishments that provide support activities, telecommunications reselling services, or many of the same services provided by establishments in the first two industry groups, but do not operate as telecommunications carriers.

1. Growth 3.5 out of 5 stars
2. Total return  2.0 out of 5 stars
3. Efficiency 3.5 out of 5 starts
4. Price volatility 4.5 out of 5 stars - the stock is less volatile than 80% of the stocks we monitor
5.  Income - 5.0 out of 5 stars - the company's dividend is higher than 90% of the companies we track

FINANCIAL ANALYSIS 

AT&T INC's gross profit margin for the third quarter of its fiscal year 2020 is essentially unchanged when compared to the same period a year ago. Sales and net income have dropped, however the growth has outpaced the average competitor within the subsector. AT&T INC has very weak liquidity. Currently, the Quick Ratio is 0.49 which clearly shows a lack of ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. During the same period, stockholders' equity ("net worth") has remained virtually unchanged only decreasing by 4.09% from the same quarter last year. The key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the near future.

VALUATION BUY. 

This stock's P/E ratio indicates a discount compared to an average of 23.04 for the Telecommunications subsector and a significant discount compared to the S&P 500 average of 38.33. Conducting a second comparison, its price-to-book ratio of 1.21 indicates a significant discount versus the S&P 500 average of 4.11 and a discount versus the subsector average of 2.37. The price-to-sales ratio is well below both the S&P 500 average and the subsector average, indicating a discount. Upon assessment of these and other key valuation criteria, AT&T INC proves to trade at a discount to investment alternatives.

1. Price/ Earnings - T 19.68, Peers 19.21
2. Price/ Projected earnings - T 9.32, Peers 14.34
3. Price/ Book  T 1.21, Peers 2.37
4. Prices/ Sales T 1.23, Peers 2.14
5. Price/ CashFlow T 4.73, Peers 6.75
6. Price/ Earnings/ Growth T 0.29, Peers 2.24
7. Earnings Growth T - 31.84, Peers 38.13
8. Sales Growth T - 5.26, Peers 2.98