Is AT&T stock valued correctly?

We believe that at less than $ 28 per share currently, AT&T actions (NYSE: T) seems undervalued. The stock is down nearly 30% from the $ 39 level seen in early 2020. It was trading at $ 38 in February 2020 (just before the coronavirus pandemic) and is currently still 28% in below this level. AT&T stock only managed to gain 3% from its March 2020 low of $ 27. The stock has significantly underperformed the market over the past year due to a lackluster launch of its streaming offering - HBO Max, as well as the acquisition of Warner Media not adding much to the figure. business in 2020 due to the pandemic that is hitting the film hard and advertising revenues of media giants. Additionally, AT&T continues to face intense competition from Verizon and T-Mobile in expanding 5G technology, alongside Dish Network which announced a 5G partnership with Amazon’s AWS. As HBO Max is expected to gradually increase its subscriber base, it will face intense competition from bigger rivals like Netflix and Disney. So, we believe AT&T shares are unlikely to return to pre-pandemic levels anytime soon, due to growing competition from streaming and 5G companies.

A positive point for the company is that its loss of video subscribers decreased in the second quarter of 2021 to 473,000. This is the smallest quarterly loss since the fourth quarter of 2018. In order to focus more on 5G and its main telecommunications business, as well as on debt reduction, the company is reducing its entertainment business. This is evident from the sale of its Vrio business unit, which provides live and on-demand video services in Latin America, to an investment group based in Argentina. The stock will likely see a slight rise to near $ 30. Our conclusion is based on our comparative analysis of the performance of AT&T stock during the 2008 recession versus now in our dashboard.

Coronavirus crisis 2020

Timeline of the 2020 crisis so far:

• 12/12/2019: Coronavirus cases first reported in China
• 01/31/2020: WHO declares global health emergency.
• 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
• 03/23/2020: S&P 500 34% drop from the peak level seen on February 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices collapse in mid-March amid Saudi-led price war
• Since 03/24/2020: S&P 500 recovers 103% from lows on March 23, 2020, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.

In contrast, here is how AT&T stocks and the broader market behaved during the 2007-08 crisis.

Timeline of the 2007-08 crisis

• 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
• 09/01/2025 - 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
• 03/01/2009: Approximate low point of the S&P 500 index
• 12/31/2009: Initial recovery to pre-accelerated decline levels (around 9/1/2025)

Performance of AT&T and the S&P 500 during the 2007-08 financial crisis

AT&T stock fell from around $ 42 in September 2007 (pre-crisis peak) to $ 24 in March 2009 (as markets bottomed out), implying that AT&T stock lost 44 % from its approximate pre-crisis peak. It recovered from the 2008 crisis, to levels of just over $ 28 in early 2010, increasing 18% between March 2009 and January 2010. By comparison, the S&P 500 index fell by 51%. % and recovered by 48%.

AT&T Fundamentals Over The Past Years

AT & T’s revenue grew from $ 160.5 billion in 2017 to $ 171.8 billion in 2020, due to the increase in postpaid connections. Despite higher revenues, margins have declined in recent years, with EPS falling from $ 4.77 in 2017 to $ -0.75 in 2020. Margins in 2020 have been affected due to lower revenues ( year-on-year), higher equipment costs and strong asset depreciation.

Does AT&T have enough cash to meet its obligations during the coronavirus crisis?

AT & T’s total debt grew from $ 164.3 billion in 2017 to $ 157.2 billion in 2020, while its total cash flow grew from $ 50.5 billion to $ 9.7 billion over the course of from the same period. AT&T has generated healthy operating cash flow of $ 43 billion in the past twelve months. Although the level of indebtedness is quite high, a good ability to generate cash from operations in recent years provides the company with a liquidity cushion to overcome the current crisis.

Conclusion

Phases of the Covid-19 crisis

• Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
• End of March 2020: social distancing measures + confinements
• April 2020: Fed stimulus suppresses short-term survival anxiety
• May-June 2020: Resumption of demand, with a gradual lifting of confinements - no more panic despite a steady increase in the number of cases
• Since the end of 2020: Weak, but persistent quarterly results demand improvement and advances in vaccine development boost market sentiment

Despite the recent increase in Covid-19 cases, we expect demand to improve (with the lockdowns being lifted and vaccination coverage expanded) to support market expectations. As investors focus on the expected results for 2021 and 2022, we believe the recent rise in AT&T shares has already accounted for the bulk of the growth in subscriber base, revenue and earnings over the next few years. quarters. The company faces intense competition in the streaming and 5G sectors and we are likely to see only a modest increase in AT&T shares in the near term.

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