We believe that at the current price of $ 31 per share, AT&T share (NYSE: T) appears to have exceeded its fair value. AT&T
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. It doesn’t help that oil prices collapse in mid-March amid a Saudi-led price war
- Since 03/24/2020: S&P 500 recovers 86% since the lows seen on March 23, 2020, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.
On the other hand, here is how AT&T stock and the market in general behaved during the crisis of 2007-08
Timeline of the 2007-08 crisis
- 1/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low of the S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 09/01/2008)
Performance of AT&T and the S&P 500 during the 2007-08 financial crisis
AT&T stock fell from levels of around $ 42 in September 2007 (pre-crisis peak) to levels of $ 24 in March 2009 (as markets bottomed out), implying that the AT&T stock is down 44% from its approximate pre-crisis peak. It recovered after the 2008 crisis, to levels of just over $ 28 in early 2010, up 19% between March 2009 and January 2010. In 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, higher equipment costs and high asset depreciation.
Does AT&T have sufficient cash cushion 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 during 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 strong ability to generate cash from operations over the past few years provides the company with a cash cushion to weather the current crisis.
Phases of the Covid-19 crisis:
- From early to mid-March 2020: Fear of the rapidly spreading coronavirus epidemic results in reality, with an acceleration in the number of cases worldwide
- End of March 2020 and beyond: social distancing measures + lockdowns
- April 2020: Nourished stimulation suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with progressive lifting of locks – 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 surge in the number of new cases of Covid-19 in the United States, we expect continuous improvement in demand to support market expectations. As investors focus on the expected results for 2021, we believe the recent rise in AT&T shares has already explained the growth in subscriber base, revenue and earnings in the coming quarters. The company faces intense competition in the streaming and 5G business and we will likely see, in fact, a marginal decline in AT&T shares in the near term to $ 30.
5G wireless technology is a hot trend. Which stocks should you choose? Discover our theme on 5G actions for more details.
See everything Trefis price estimates and Download Trefis data here
What is behind Trefis? Find out how it fuels a new collaboration and why Financial directors and finance teams | Product, R&D and marketing teams