2024-01-24 00:42:00 ET
Summary
- AT&T has a few growth engines such as Fiber and Mexico operations, but they are too small to impact the overall growth profile of the company.
- Fiber-related growth has mostly come from pricing improvements and increased fiber-penetration of broadband rollouts. However, volume growth is needed for a longer growth runway and here, broadband connections are decreasing.
- Margin improvement of $2 billion over the next 3 years is expected, but given the EBIT margin surprise record, there is potential of falling under the guide.
- The US Broadband Equity Access and Deployment Program (BEAD) is the key growth catalyst; this is so far not expected to kick in until 2025, making mid-late 2024 a better time for entry into AT&T.
- AT&T trades at a 36% discount to peers; it may be a good value buy right now. But for investors who prefer to accompany value with growth catalysts, I believe the stock is a 'neutral/hold' for a few more months still.
Thesis
AT&T ( T ) is trying to re-orient its business toward growth and operational efficiency and succeeding in some ways. But it not enough to make me buy it yet. Hence, I rate it a 'neutral/hold'. The upcoming Q4 FY23 earnings call on 24th Jan 2024 is unlikely to change my stance as I need to see multiple quarters of traction in growth and margins to believe in a genuine turnaround.
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AT&T has a few growth engines but it is hardly sufficient for meaningful overall growth
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Longer term margin improvement is expected, but may be less than the guide
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AT&T trades at a discount to peers, but it is not enough to trigger a buy
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For further details see:
AT&T Q4 Preview: Staying On The Sidelines Until We Get Closer To Growth