Summary

The market continues to perceive AT&T as dead money which could be a long-term opportunity for investors with a long time horizon and a strong stomach.

AT&T’s decline continues regardless of the fact that they continue to generate tremendous amounts of revenue, tens of billions in FCF, and their debt level is manageable.

I think management’s decision to spinoff WarnerMedia and combine it with Discovery will unlock value for shareholders as the new entity will have tremendous growth potential.

Based on today’s numbers and using revenue as the valuation metric for the spinoff, legacy T on the low end would still generate a dividend that exceeds 5%.

jetcityimage/iStock Editorial via Getty Images Obviously, the market hasn’t been a fan of AT&T ( T ), and many investors consider T an investment where capital goes to die. The chart is horrible as shares have declined by -8.3% over the past year. In May, T caught a mini-rally, and shares briefly exceeded $32, then drastically declined. Looking at the five-year chart is even more depressing as T went from the $40 range down to the low $30s, rallied back to $40, then just downward spiraled, crashing through the $30 level. In a bull market, T has been one of the most disappointing stocks, and I believe if it wasn’t for the large dividend, more investors would have cut ties with T.

Why is this time different, and why do I believe shares of T are worth a look? T is a boring company, their growth opportunities aren’t exciting compared to many of the market darlings, and it’s hard to make a case that investor sentiment will get excited about T in the future. There are many reasons to avoid T today or to consider T as part of a tax loss harvesting component going into the end of 2021. Could there be future financial pain for shareholders of T, absolutely? Normally I don’t have a problem letting go of a bad hand, and I don’t fall in love with companies. I think the sum of parts in T’s case will unlock value for investors and their numbers are too strong to be ignored in contrast to their valuation. Going forward, T should be looked at as the company it will become in 2022, not the company it is today. (Source: Seeking Alpha) The company T is today, and the company shareholders will own in 2022

One of the things I am the most disappointed about is the lack of clarity on the WarnerMedia spinoff. Sure, management continues to update shareholders on the regulatory progress and expresses their opinions that they still believe mid-2022 is the target date for the spinoff to take place, but many shareholders want details. Disclosing that shareholders of T will own 71% of the new company once WarnerMedia is spun off and combined with Discovery ( DISCA ) isn’t enough. As a shareholder, I want the numbers. I want to definitively know how many shares will be issued of the new company and how WarnerMedia is going to be valued compared to the rest of T? Many of us want the details so we can run the numbers and see what we will be left with in regards to legacy T, then how many shares our current shares of T will represent in the new company. For long-term shareholders or even prospective shareholders interested in the new company, these are critical to making an investment decision and management shouldn’t be leaving everyone in the dark. (Source: AT&T)

Today T is a beaten-down juggernaut that still generates large amounts of revenue and cash. T’s consolidated revenue in Q3 came in at $39.9 billion, which was a decrease of 5.7% YoY as Q3 2020 generated $42.3 billion in revenue. The decrease is attributed to the separation of the U.S Video business, other divestitures, and a decrease in T’s Business Wireline business. The overall decreases were offset by strength in the Mobility unit and WarnerMedia. T made a note in their 10-Q that their Q3 consolidated revenues totaled $38.1 billion compared to $36.4 billion YoY if you were to exclude the impacts of the U.S Video business from both quarters. While this doesn’t help T today as it’s a legitimate impact, it does help illustrate what T will look like in the future as its core business will look much different.

Today, T is a company that has generated $173.6 billion in revenue and $25.7 billion in free cash flow (FCF) […]

source AT&T: At $25 A Share, 8% Dividend, And The WarnerMedia Spinoff, It Is Worth A Look

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