AT&T Inc. (T)

From Deutche Bank

Post-3Q21 Thoughts & Model Update; Last Close USD25.76, Buy.
Bryan Kraft: We are maintaining our Buy rating and $37 PT following the company's 3Q21 results. Our longer term revenue, EBITDA and FCF estimates are increasing by around 1-2% following our incrementally more favorable view on fundamentals in AT&T's core communications businesses (see figure 2). We believe that AT&T's stock price offers attractive upside as the company completes the pending spin/merge of Warner Media in 2022, resets the dividend, reduces leverage, continues to execute on its wireless revenue growth turnaround and cost transformation, and invests in FTTH broadband growth. Our SOTP based $37 PT implies nearly 44% upside to the current stock price.

I don't know how they figure but it looks like the street thinks AT&T is valued at somewhere between $25 and $26 dollars a share.....If this isn't the case they are waiting until after the dividend is CUT and The Discovery merger is complete and the first quarter results.T will be getting 43 billion and probably will may down some debt,buy back some shares and continuing building their 5-G network with the money.I've been following the stock closely and see NO reason to sell the stock.After all no stock is guaranteed and most of the market is pricey.To me T is undervalued and a great buy, especially if you look at what the BANKS are paying,nothing,an automatic loss on your money with inflation..

Many stocks could get oversold because of tax-loss selling—a good thing for investors. “We do see buying opportunities, as some tend to dump shares at attractive pricing towards the end of the year,” Dave Wagner, portfolio manager and analyst at Aptus Capital Advisors, told Barron’s

Harvesting usually happens in the fourth quarter, in the run-up to the close of the tax year. And October is traditionally packed with sales, maybe because the month kicks off the quarter.

For the past 20 years, the stocks most vulnerable to tax-loss selling have performed roughly in line with the broader stock market in the fourth quarter but gained 1.3 percentage points less than the S&P 1,500 in October, a Morgan Stanley screen shows. The S&P 1,500, with a total market capitalization larger than the S&P 500 ‘s, is the measure because it accounts for all large, midsize and small-cap companies in the U.S.

Morgan Stanley identified the tax-loss selling stocks as ones in the S&P 1,500 that fell 10% to 25% from mid-January through September. Those that lost more than 25% weren’t included because they probably will be bought by investors looking for cheap names, the bank said.

T beat earnings and added over 900,000 new customers and still, it's in the red today. No love for T. Why? Because 1. the investment community does not like T and thinks it is a bad investment. 2. investors doe not trust T management to make good decisions. 3 the merger info is not clear enough. what will be the value of WBD shares be? how much will T new dividend be ? 40-45% of new fcf, whatever that is. 4. too many unknowns until the merger. 5. T history of burning investors. Expect T to decline in price until 1. the merger takes place. 2. new T dividend rate established. 3. value established of the new WBD stock T investors will receive. 4. investors start to have faith that T management knows what they are doing and proves it. I do believe T will be ok when the dust settles next year but will take time for investors to trust T again and want to invest in it.

AT&T funny business: T has the best business subscriber business every other new 'tech' company wishes they had and strive to get. The CEO, board, executives screws this up majorly.
-They buy Direct TV with huge loans. They should know it is a dying business since they own internet and cell phone business. Buy for $40billion+ and they turn around and sell it for $15 billion after huge subscriber losses.
-They try to buy T-Mobile, fail and pay out $2Billion free cash to Tmobile.
-They buy Warner entertainment for $70+ billion. Get loans, pay lots of interest, just a year or so later they spin/sell/merge with discovery and lose value, all the while still paying loans and paying interest.
-Few more acquisitions that I did not list that went bust.

*Now, think about it! Banks love those deals. Every time a big Billion dollar + loan, transaction, they collect fees.
*Back room deals, money changes hands, executives make money, millions.
*Warner, discovery, direct tv executives walk off with millions, billions.
*Money comes from share holders who sit tight, believing AT&T who says if we buy this, we will grow!

Shareholders get dividents yes, but at 7%, underperforms any other index. Also your shares went from $40 a few years ago to now $25. So you lost money!

It is legal stock market corporate deception.
I would not give them a single more money and buy any shares

Morningstar still "Finds T attractive" (Fair value maintained @ $36):
AT&T Delivers Solid Customer Growth During Q3 as Content
and Network Investments Ramp Up
Analyst Note Michael Hodel, CFA, Director, 21 Oct 2021
"AT&T’s third quarter earnings displayed several of the same themes as the last few quarters: solid
momentum in the wireless business, continued growth at HBO Max, and steady gains in consumer
broadband, set amid financial complexity as management deconstructs the firm’s former strategy. Our
$36 fair value estimate is unchanged, and we believe the shares are attractive.
Wireless customer additions were impressively strong. AT&T added 928,000 net postpaid phone customers, by far its strongest quarter of the past decade, leaving its base nearly 5% bigger than a year ago. Prepaid net customer growth (351,000) was also the strongest since 2018. AT&T has paid for this growth with lower pricing overall. Average revenue per postpaid phone customer declined 0.6% year over year as the amortization of phone discounts hits this metric (an artifact of contract accounting).
Still, wireless service revenue increased 4.6%, positioning the firm to easily hit its 3.0% growth target for the full year. Though EBITDA grew 3.6%, the wireless segment EBITDA margin dipped to 41.7% from 43.1% a year ago, reflecting management’s effort to reinvest gains from its cost savings program into customer acquisition and an increase in the phone upgrade rate (related to the iPhone launch). HBO Max added 1.9 million net new customers, a sharp slowdown versus past three quarters. The Warner lost 1.8 million net Max customers in the U.S. during the quarter, resulting from the removal of the service from Amazon Channels. The decision to assert control over the Max customer relationship makes long-term sense in our view, particularly with a distributor like Amazon that is also a competitor.
With the launch of Max in Latin America, the service added 3.7 million customers outside the U.S., an 18% increase in the international customer base during the quarter. With several European launches coming, Warner should easily hit its target of 70 million-73 million global Max customers by the end of
the year".

Reading the transcript Q&A of the earnings call it’s disappointing to have Stankey speaking positively about the government directly subsidizing households as a positive for T. He fails to demonstrate his understanding what inflation will do to his customers for the long term that will outlast any unsustainable government handouts. The analysts response to Stankey “the market is telling you that investors don't believe it, not necessarily about AT&T, but look at the stock price of AT&T, Verizon and T-Mobile together.”
And investors are discounting the terminal value of these companies pretty massively. And so more detail on that over time might be really helpful.

John Stankey -- Chief Executive Officer

Well, I think our job is to do what we say we're going to do each quarter and continue to meet our commitments and carry it through. And ultimately, over time that when the cash shows up, it tends to get reflected in the stock price.

To me the above exchange does not instill confidence that Stankey is listening or able to appreciate concerns of his investors.

A lot of investors are questioning why T stock is down after this strong earning report. The answer is straightforward. Because analysts are saying that the growth is coming from huge discounted promos to add new and to retain current subscribers. These huge costs are being amortized in the financials and therefore impacting not only current but also the future margins of the business. Since T started with these aggressive promos only 5 quarters ago, the snow ball effect is just starting to hit margins which would continue deteriorating exponentially as more subscribers are added or upgraded with similar promos in future quarters.

But T is not alone on this practice. It is pretty much all big carriers VZ and T-Mo are also doing the same. It is an industry issue. As Phillip A. Cusick, DM and Senior Analyst at JP Morgan Chase told T executives including J. Stankey during their earning call yesterday:

“Everybody have been impressed with the results of T during the last year….still the market is telling that investors don’t believe it, not necessarily about AT&T, but look at the stock price of AT&T, Verizon and T-Mobile together. Investors are discounting the terminal value of these companies pretty massively”.

I think these analysts are wrong. They need to look beyond the margins to the bigger picture such as the strong business relationship T is creating with these subscribers that translates in higher LTV due to significant lower churn. Also they need to look at the net future cash flow from these massive subscribers additions irrespective of any decline in margins. At the end of the day T would generate significantly more operating cash flow with this strategy than limiting itself to grow at a much lower pace just to achieve better margins.

Before, T was criticized and its stock price punished becase it was not growing and now that is delivering spectacular growth, it is being criticized and punished because it is impacting margins without any appreciation to the growth in earnings and cash flow being delivered.

At the end of the day, as long as T continues delivering incremental cash flow with this strategy, the stock price will increase proving that these analysts are just wrong.

Simon Flannery -- Morgan Stanley -- Analyst

“I wonder if you could give us a little bit more on when we might learn more at the final structure of the deal of the dividends policy, etc.? Thanks.”

John Stankey -- Chief Executive Officer

“As we indicated in our opening remarks, we're moving through the steps with the various regulatory agencies, both domestically in the U.S. and outside the U.S. Those processes are moving along at the pace we would have expected and don't see any surprises around it. As you might guess, regulatory agencies are doing their typical overview around that.”

“I would not expect that we would be giving details of the deal until we have some degree of visibility that we know that there's going to be a positive affirmation from the government. You probably know that we're not at that point right now, and we're probably not going to be at that point until we get into the early part of next year.”

“Then, we will look at where the stock price is, how things are standing in the market at that point in time, and then we'll be giving you some visibility around what we think the right path forward will be. And obviously, we want to see what also transpires here in Washington over the next couple of months. There's chances that policy may change around how different types of distributions or different approaches get taxed. And all that has to be factored into our overall equation of how do we get value back into the shareholders' pocket in the right way.”

I suspect the primary delay in doing the Deal is the issue of taxes.