The study by the telecommunications giant AT&T made a generally positive impression. The findings, even in the core market section, were better than anticipated, which not the case with Verizon was. Forecasts for 2021 were the weak point of the publication.
The net sales of AT&T fell 2.3 percent year-on-year to $45.69 billion, which was better than the $44.5 billion consensus estimate. The company expects that there would have been $2.5 billion more sales without the COVID-19 impact. Compared with the planned $0.73, adjusted EPS was $0.75. Cash flow from operations, exceeding $10.08 billion, was in line with analyst estimates.
AT&T’s main telecom services division posted the best results: its sales hit $36.7 billion, versus a median estimate of $35.7 billion. 1.23 million users become net smartphone customers, which is double the predicted outcome of 628 thousand. This is a remarkable feat, especially against the backdrop of surprisingly slow subscriber growth at Verizon, the long-time competitor of AT&T. It should be noticed that the company is slightly beating the estimates for growth in the number of subscribers for the second quarter in a row. According to the 2020 results, the number of communications subscribers with ‘in reality’ payments was 64,2 million. We want to conclude that this outcome was the result of a beneficial value proposition for customers who enjoy guaranteed access at premium rates to the HBO subscription service.
With a projection of $8.24 billion, sales in the WarnerMedia division, which includes HBO, soared to $8.55 billion. Compared to the third quarter, the overall number of subscribers to HBO subscription services rose by 2.5 million and reached 41.5 million. The pace of the growth of HBO’s audience is accelerating, and this development will undoubtedly continue in the immediate future. In 2021, the company will continue to invest in the production of entertainment, introducing a simultaneous film release plan on the streaming channel and in cinemas.
The 2020 dividend payments from AT&T accounted for 55% of its annual free cash flow, which amounted to $27.5 billion. Previously, the management has consistently reiterated that 50-60% of the FCF will be reserved by the organization for dividends.
Although we consider the actual performance of the business for the fourth quarter as largely optimistic, the projections are marginally disappointed for 2021. The company expects modified EPS to have zero dynamics, while the consensus estimate was 0.7 percent for its growth. Revenue would contribute in 1 percent, which is below the 1.3 percent consensus, according to management. The corporation expects $26 billion in free cash flow and hopes to retain 55-60 percent of the FCF in dividend payments.
The outcome of the federal auction for the selling of 5G communication frequencies, for which AT&T may pay up to $20 billion, remains a strong uncertainty factor. This will raise the company’s credit pressure, but we assume that the proposed selling of part of DirecTV (or all of this business) could provide additional financial help in 2021.
We are lowering the target price from $33 to $32 for the AT&T portfolio, taking into account the conservative estimates of management for 2021. Not only because of its 7 percent dividend yield but also because of the good success of its core company, we continue to find the stock of AT&T attractive. Margin is still more than 11 percent from current levels.