Source: PaxForex Premium Analytics Portal, Fundamental Insight
Entering 2024, AT&T appears to have successfully navigated a substantial transformation under the leadership of CEO John Stankey. Having assumed the role in July 2020, Stankey refocused the company on its core telecommunications business, shedding entertainment assets acquired in previous management.
Despite a challenging period for investors in recent years, marked by a dividend cut in 2022 and a prolonged period of stock underperformance throughout much of 2023, AT&T has exhibited signs of a positive turnaround. Towards the close of 2023, the company experienced a gradual uptick in its stock performance, coupled with an upgrade to an overweight rating by J.P. Morgan this year.
As AT&T charts its path for long-term success, a key component of its strategy is the expansion of its customer base for 5G wireless and fiber optic internet products. In a digitally connected society, persistent demand for these offerings is anticipated, contingent on AT&T's ability to outpace competitors in capturing customers.
On this front, the telecom giant has demonstrated notable success. Under John Stankey's leadership, AT&T has achieved 14 consecutive quarters of growth in postpaid subscribers, a segment highly valued in the telecom industry. Additionally, the growth trajectory for AT&T's fiber-optic product has been remarkable, with the fourth quarter marking its 16th consecutive quarter of over 200,000 net customer additions and 2023 registering the sixth consecutive year of over 1 million net additions.
This sustained customer expansion has translated into increased revenue. In the wireless business, Q4 revenue experienced a 4.1% year-over-year growth, reaching $22.4 billion. Impressively, fiber revenue soared by 22% year over year to $1.7 billion.
While fiber sales currently constitute a modest portion of overall revenue, the growth trajectory is noteworthy. Under Stankey's leadership, AT&T's fiber business expanded by nearly 120% from $775 million in Q3 2020, his inaugural quarter as CEO, to $1.7 billion in Q4 2023. The company anticipates that the adoption of fiber will drive at least a 7% revenue growth in its broadband business for the year 2024. As investors contemplate AT&T shares in 2024, the company's strategic shift and positive performance indicators suggest that it may indeed be an opportune time for consideration.
AT&T's impressive revenue expansion in 2023 has led to substantial growth in its free cash flow (FCF), reaching $16.8 billion - a notable increase of $2.6 billion compared to the previous year. FCF serves as a key indicator of available cash for business investment, share repurchases, debt obligations, and dividend funding.
Of particular significance for AT&T investors is the positive outlook for FCF, expected to continue its growth trajectory in 2024, reaching at least $17 billion according to the company's projections. This projection enhances confidence in AT&T's sustained capacity to fund its dividend.
Addressing the challenge of its substantial debt load is a crucial focus for AT&T, a situation stemming from significant investments in entertainment businesses before CEO John Stankey's tenure. The company incurred additional debt while building its 5G network. However, AT&T has been diligently reducing its debt levels. The net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio now stands below 3, with plans to further reduce it to around 2.5 by the first half of 2025 - indicating progress toward a more manageable debt level.
The year 2023 marked a pivotal period for AT&T, signaling a potential turning point in its return to a telecom-centric business model. With decreasing debt levels, rising free cash flow, and consistent customer growth contributing to increased revenue, the company is positioned for positive momentum.
AT&T's recent success has prompted CEO John Stankey to express optimism about the company's future during a recent earnings call. He emphasized the open possibilities for AT&T and its commitment to actions aligned with the best interests of shareholders.
Considering the company's current upward trajectory, effective leadership under John Stankey, and an attractive dividend boasting a robust 6% yield despite the 2022 cut, AT&T stock presents itself as a compelling investment opportunity for 2024.
As long as the price is above 16.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 16.67
- Take Profit 1: 18.00
- Take Profit 2: 20.00
Alternative scenario:
If the level of 16.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 16.00
- Take Profit 1: 15.00
- Take Profit 2: 14.00
