T stock: Time to read professional report - CFRA

 Jan. 16, 2021

Introduction

It takes time for me to research and get job done to purchase 600 shares of AT & T stock. I like to focus on stocks like EXPR and try to make more profit from those stocks, and leave T stock as is for next three months. 

My research

I like to challenge myself to understand basics. I read the reports and then try to build some foundation knowledge. 

We see a 5.8% sales decline in 2020 and 1.6% growth in 2021. Covid-19 continues to generate significant headwinds, especially in the WarnerMedia segment, which reported a 10% sales decline in Q3. In the mobility segment, the company reported 645k postpaid phone net adds and 131k prepaid net gains, as customers who are financially distressed migrate to lowercost prepaid plans. In Q3, AT&T Now net losses of 37K and premium TV net loss of 590K subscribers continue to be driven by cord-cutting. 

We see EBITDA margin between 33.0% and 33.1% in 2020 and 2021, similar to 2019. We see about $2.5B in synergies from the Time Warner deal, as T aims to sustain margins amid a low growth environment in its core businesses. 

According to unconfirmed reports, T is in discussions with private-equity firms to sell a minority stake in DirecTV, AT&T Now, and UVerse. T would maintain ownership of U-verse infrastructure, including plants and fiber, while the buyer would control distribution operations and consolidate the business on its books. Final bids are due in December with the valuation expected to be under $15B. We see the possible valuation as disappointing and would prefer it to sell the whole business.

Investment Rationale/Risk

Our recommendation is Buy. We positively view the Time Warner deal, with $1.5B in annual cost synergies by the end of year three and $1B of annualized revenue synergies. We note T's net debt position rises substantially with net debt to adjusted EBITDA of 2.6x, but see higher free cash flow ahead, which improves its dividend pay-out ratio to the high 50% range. CEO Randall Stephenson stepped down on July 1 and was replaced by COO John Stankey. We think Stankey is a good fit for the position but are concerned with the timing. AT&T has completed the sales of its wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands to Liberty Latin America for $1.95B in cash. There have also been reports that WarnerMedia will cut thousands of jobs to reduce costs by as much as 20%.

My notes:

1. Learn more about AT&T business, google and youtube CEO Randall Stephenson and John Stankey;
2. Look up WarnerMedia layoff jobs - thousands of jobs - reduce cost as much as 20%
3. My belief is that 20% cost cut by laidoff shows determination for the company to work on profit. It is hard for ex-employees but it is definitely a good sign to invest my hard earning saving into the stock. 
4. I am willing to take some risk to hold T stock as my investment, it is ok to take some loss and then focus on other stock project. 
5. It is ok for the stock to go down two or three dollars, as long as I continue to hold and wait the price come back. 

Actionable Items

I should take less action on market move on AT & T next three months, try not to time the market, and relax and enjoy three months as a share holder. I like to enjoy the dividend and purchase some gift for myself.