Why Is AT&T T Stock DOWN! ｜ GREAT Time To BUY AT&T？! ｜ T Stock Analysis! ｜

AT&T has just reported its earnings in the pre-market it is down currently 2 and a half% it has been fluctuating down almost 5 to 6% let's take a look is it undervalued is it a buy now as always we'll run into a deep dive looking at their Topline Revenue how well has it progressed how well is their bottom line net income doing we'll have a quick look at the health of the company total cash versus total debt we'll also see how well they're performing on a total return versus some of their competitors Over The Last 5 Years we'll analyze some institutional ownership in the most recent quarter are they buying or selling we'll take a look at some Insider buying and selling do we have any and we'll also see the dividend safety what is that score what does it show us as well as looking at some Financial metrics we'll also dissect the earnings that did just get released very recently and as always we will run them through the valuation model getting to the intrinsic value based on this earnings look looking at the acceptable Buy price given our investor margin of safety and as always we will take a look and see what Wall Street are forecasting 40 over the next 12 months so let's jump straight into their earnings firstly so we can see the headline for 2024 they did Miss but Q4 Wireless subscribers adds top views so let's go into it now we can see they did report before the Market opening with their earnings for the December quarter falling 11% to 54 so they did in fact Miss on the EPS however we do see that their revenue continuing operations is up 2.2% and we can see that this analyst had projected around 56 cents of Revenue and a year earlier if we are looking at historical performance they did have around 61 Cent so it is coming in lower now on a more positive note we can see that their q43 cash flow of 6.4 billion came in significantly higher than estimates of 6.07 billion and that as we can see here does support that growth in their dividend which we are yet to wait and see in terms of their Wireless subscriber additions which is quite important we can see it is above estimates and they said they've added 526,000 post-paid Wireless Customer phones although when we compare that to the previous year it is down from 66,000 but the positive to note here is that analyst had estimated 494 th000 so AT&T did beat on both the free cash flow estimate as well as the wireless subscriber additions so a few things to dissect there now in terms of their historical performance they are down 10% over the last year they're now trading in the mid to lower end of the 52e range forward PE sitting around seven with that yield after today's drop going ever so close to 7% over the last 10 years well no surprise you would be down 32% on your position do bear in mind this doesn't include those dividends reinvest invested and we can see all-time highs pretty much going all the way back to 2016 at around $33 now in terms of their Topline Revenue over the last 5 years now it is important to bear in mind that some of this will be slightly skewed due to the fact they did have that Warner Bros spin-off but what we can see in December 2018 their Top Line went from 171 billion to 121 billion in 2022 and they are expecting as we did see an increase to 2023 at around 122 billion so yes it is understandable that it has gone down due to this spin-off that even from 20121 we can see it did drop to 2022 with a very small increase in 2023 so we will discuss this shortly when we do look at those financial metrics those increases year on year to the Top Line bottom line net income well 19.4 billion in December 2018 a loss reported of 8.5 billion in 2022 and an exp expected even bigger loss in 2023 so just a few things to point out very inconsistent not just on the top line but also the bottom line and we have two years of a net loss showed in their accounting statements over the last 5 years so something just to consider it isn't all doom and gloom as there was some of that relating to the spin-off of Warner Bros now in terms of the balance sheet a quick health check total cash versus total debt 5.2 billion of cash and short-term investments in 2018 7.6 billion in their latest quarterly report so they are holding more cash than they did 5 years ago now comparing that numerically and directionally to their total debt what we can see here is that it has gone from 179 billion in 2018 to around 163 billion so on a more positive note whilst the cash has increased their total debt which was humongous in 2018 has started to come down moving in the right direction and we'll touch upon this when we do look at the net debt to ebit diametric and analyzing the dividend safety so very briefly then companies in a similar sector we have deutser Telecom we have Verizon we have BCE and a few other popular ones to note now over the last year including those dividends reinvested AT&T was one of the worst performing as we can see if you want to compare them to one of their direct competitors Verizon in the same year they were up 142% now when we look at the last 5 years we can see that AT&T is up really only 2.4% the second worst performing and when we compare that to Verizon in fact Verizon is the worst performing so they actually switch in terms of performance but as always just because these are very bad performers such as AT&T it doesn't mean that their historical performance is any indicator of future performance but we do include it within our analysis now institutional ownership fa T around 54% 6.2 billion worth of sales by these institutions over the last 12 months four times as much buying 24 billion over the same period institutions are liking AT&T clearly they have been buying a lot of shares with the largest in Q2 of 2023 but we also know in q1 and Q3 more buying than selling with Q4 we see the opposite we see slightly more selling than buying but overall over the 2023 period institutions have been buying more shares than selling but as always do your own due diligence don't copy what the institutions do blindly at all inside the selling or buying we have had a very quick look we filtered for AT&T with a minimum 100 shares over the last year and we can see there has been no inside of buying or selling so we will skip that and go straight into the financial metrics dividend safety score then 60 it is sitting boardline safe market cap 123 billion a mega cap company now in terms of those key recess metrics well they increase the dividend during the last recession they had above average growth of -1% versus the S&P is -12 and they also outperformed the S&P with A- 45% return versus the snp's 55 in terms of dividend growth well no surprise no increase last year they did in fact have a dividend cut hence thetive 11% last 20 years again 0% on average although we do know they have started to increas those free cash flows which is very positive and could mean the start of those 9 increases from AT&T dividend yield Theory as always States a company is undervalued when the current yield sits above the 5year average now two things to note here it is below so that is an overvaluation signal but given the share price is essentially dropping by at least 2 to 3% right now it could go down further so I would expect this 5year or in fact this current yield to go slightly higher so I would expect reasonable valuation upon Market opening and the forward PE I would expect to goow lower and we can see a 7.1 right now based on the current pre-market value versus the 5e average of 8.5 we can also see the communication sect be significantly high at 16.6 versus AT&T 7.1 free cash for payout this is very important earnings it is susceptable to manipulation by management through accounting so we do tend to just ignore it but the data is there for investors who like to use it below 70% for the telecoms industry now 2022 at 64% 2023 expected 40% I would like to see especially today given that free cash flow has increased from the analyst estimates at least a few percentage Point increase to the dividend it would be nice to see in my opinion a 4% in line with inflation increase free cash flow per share 253 in 2013 173 in 2022 so we do see a lot of inconsistencies up to 2021 it was moving in the right direction now it has dropped in 2022 it's it is expected to increase to 276 so it is moving in the right direction but you can see the inconsistencies with this company which is a bit of a worry but as always it is important to understand the type of companies you are investing in now we can see here the drop in their top line now again this is due to the spin-off with Warner Discovery and therefore it makes complete sense now 2023 we can see a 1% increase not the greatest in fact when we did look at the reported quarterly earnings it was up around 2% as always I do like to be around 2 or 3 to 7% for steady moderate growth so what we can see in 2023 their Top Line in real terms considering inflation actually decreased always bear that in mind when you do analyze companies always factor in inflation total sales then we can see 129 billion to 122 on top of that one thing they do that I really don't like is the opposite of those share BuyBacks they issue shares so they do the opposite of returning excess cash to invest the pockets they dilute your position 5.39 billion shares in 2013 7.17 in 2023 roic remember what we're looking for in my personal opinion is 10% or more the reason for this it gives me faith that management are able to effectively allocate their Capital what we can see here it has PR pretty much below 10% consistently although 9% in 2022 and 8% in 2023 isn't the worst and probably if this was something I was looking to invest in it would be the absolute bare minimum operating margin very nice to see above the minimum 14% over the last pretty much 8 years and the same for the free cash flow although that has been above the minimum over the last 10 years so that is very strong 2023 is expected to be some good free cash flow margin as we saw in the earnings that free cash flow is higher than analyst expectations net debt ebit Dar now remember this is the earnings before interest tax depreciation ammortization shows us the strength of the company's balance bance sheet and the dividend safety below 3.5 this is the number of years it would take the company to pay off all of their debt net of cash on hand 2023 at 3.23 is looking more positive but bear in mind it is straddling around that maximum that we look for so just something to keep in mind in my opinion if I was an investor but so far from what we can see with the net debt to ebit D below 3.5 and the free cash flow pay out below 70% that dividend does look to be safe for now so let's jump into the valuation as always if you enjoy the content values being provided smash that like button hit the Subscribe and Bell button so you are continually notified of these videos as they drop now before we just jump into the valuation model just to let you know we have sent out our first free Weekly Newsletter every Sunday so last Sunday we did an article on the seven golden dividend metrics talking about our screener for picking undervalued stocks if you do want to read that click on that free pin comment below and we will be discussing some undervalued stocks in the upcoming weeks so so now let's jump into the valuation model now typically the first model is graem's valuation however given the trading 12 months earnings per share for &t is $151 this model won't be relevant and the same really applies for the next model given we are starting off with AT&T's negative 1.51 and in my opinion the only real comparable company is Verizon so let's start off with the first model we're using the dividend discount model now we see that dividend cut last year average growth at 8% now before that we were seeing increases of around 2% so I have gone for that forward looking this gives an intrinsic value of $19 above the market value of 1662 bearing in mind this will move a lot today given it hasn't opened yet or in terms of the market discounted cash flow model my favorite model we have the free cash flows year on year average growth per analyst well average growth at 5.39 and this estimates around 4% so we have gone a lot more conservative with the discount rate we get the Pres present value of future free cash flows and terminal value add together with the cash subtract total debt get to the equity value divide by shares outstanding we get an intrinsic value of $21 so we do have a double sign of undervaluation in this calculation as always if you do want to grab a copy of this model to run through your own companies to get to your own intrinsic value as well as your own acceptable Buy price of companies in your own portfolio or on your watch list then do click on that pinned comment below so margin of safety that we always start off with is 10% % if we believe it has a wide Mo strong financial metrics good forward looking data if you believe that with AT&T or you're satisfied with a 10% margin of safety $18 would be your acceptable buy at 15% $17 at 20% pretty much not just at the current price but who knows with today's fall you could be looking at a 20% margin of safety so right now we're sitting at a 15% in terms of Wall Street well they see around 20% upside over the next 12 months and a price PR Target of $20.70 now personally this isn't one that I will be looking to invest in there is a ton of debt and in terms of the future I believe there are a significant number of opportunities out there that will completely outperform AT&T in the long run but as always everyone has a different reason for investing some people will like this yield which will be coming close to 7% but the only thing I would say is always bear in mind that total return yes if the Dividends are good but your total share allocation or your Capital allocation is decreasing it isn't that great when you can be investing in companies where both the dividend increases in double digits as well as your Capital allocation increasing significantly year-over-year as always though do let me know your thoughts in the comments below if you enjoyed today's episode smash that like button to hit the Subscribe and Bell button and as always I'll catch you on the next one take care for now