Source: PaxForex Premium Analytics Portal, Fundamental Insight
AT&T stock climbed 18.8 percent in October, according to S&P Global Market Intelligence.
The telecommunications company, whose stock has been declining for much of this year, reported earnings on Oct. 20. But in contrast to the dismal mood surrounding the company, AT&T beat both revenue and earnings forecasts and revised its full-year outlook for the better.
AT&T's Q3 revenue was $30 billion, down 4.2% from the previous year, and adjusted (non-GAAP) earnings per share of $0.68 beat analysts' expectations by $0.07.
Still, don't let the negative earnings figure mislead you, as total earnings were reduced by spin-off and divestiture. Total revenues were up 3.1% on a like-for-like basis, and the underlying drivers of AT&T's wireless business were strong. Mobile revenues were up 5.6%, and AT&T added 708,000 postpaid subscribers.
Consumer broadband grew only 1.6%, but AT&T's new fiber offerings were up 30%. Of course, this offsets the 12% drop in traditional broadband offerings, but fiber-optic connections probably have a much higher price tag.
AT&T also generated $3.8 billion in free cash flow, which will help fund its extensive 6% dividend and help reduce $131 billion in debt, but that debt load became much less onerous after AT&T dumped much of its debt on Warner Bros. Discovery as part of a spin-off of its entertainment assets in April of this year.
After the Warner Bros. Discovery, AT&T appears to be doing better as it now focuses on its core connectivity offerings. The company is investing in 5G and fiber connections, which appear to have a solid runway for growth and premium pricing. This is a good sign that AT&T can continue to grow.
Although the company is not without strong competition in both 5G wireless and broadband, its strong results for the quarter seem to have pleased analysts. Raymond James analyst Frank Louthan upgraded the stock to a "strong buy" rating after the results were released, citing the company's recent better financial performance compared to its dividend-paying competitor Verizon.
Telecom stocks aren't the most interesting in the world, but with a P/E ratio of 6.7 and such a high dividend, AT&T may be worthy of consideration for earnings seekers as part of a diversified dividend portfolio. Still, both AT&T and Verizon have to contend with T-Mobile, which is leading the way in deploying 5G mid-band, and which also reported a very strong own quarter, as well as cable companies that are using Verizon's wholesale network to bundle wireless plans very cheaply with their broadband offerings.
This is a good sign that AT&T is doing well and that it has shed the burden of debt and its entertainment segments. As long as the company continues to meet its obligations, there's no reason why its stock can't rise and continue to pay investors juicy dividends; but a good quarter doesn't mean that the competitive problems are far behind it.
As long as price is above 17.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 18.23
- Take Profit 1: 20.00
- Take Profit 2: 21.50
Alternative scenario:
If the 17.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 17.00
- Take Profit 1: 16.00
- Take Profit 2: 14.50
