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Will 5G dial-up a share price recovery for AT&T?

Telecom service provider AT&T [T] is expected to report a 4% increase in earnings per share with a 2.2% year on year fall in revenue when it reports third quarter earnings on October 21. Cost saving are seen driving profit even as promotional activity is hurting revenue and margins, said analysts.

The company had upgraded its guidance when reporting financials for its July quarter. “We’re raising our global HBO Max year-end forecast to 70m to 73m subscribers. Also, we’re updating full-year guidance for consolidated revenue, wireless service revenue, adjusted EPS and free cash flow,” John Stankey (pictured above), AT&T chief executive officer had said.

Updates on its recent tie-up with Ericsson [ERIC], 5G roll-out strategy in the US, and media plans could provide triggers for the AT&T share price.

There has been some talk that the company may look to sell its 70% in DirecTV, especially after a recent Reuters report suggested that DirecTV played a role in creating right wing TV channel One America News.

Analysts said they would screen mobile and broadband numbers to see if the return to the office has hit the demand from home workers.

More commentary on the pure-play telecoms strategy will also be key for AT&T’s share price movement.

 

 

 

Direction of AT&T’s stock price

AT&T [T] has had a tough 2021, leaving investors cold after a series of strategic decisions.

The AT&T share price had climbed 11% between the start of January and 4 May as consumers kept switching on to its streaming network HBO, with rising demand for mobile and fibre broadband.

However, its share price has plunged by more than a fifth since.

The catalyst was the group’s announcement back in May that it had agreed to merge its Warner Media arm – of which HBO is a part – with media business Discovery to create a standalone company next year.

Arguably the biggest blow to investors was the news that the merger would mean a cut in dividends.

“[AT&T is] pulling out all the stops to generate unit growth, even if that means rather muted growth in EBITDA" - Craig Moffett, MoffettNathanson analyst

 

In August, it also sold a 30% stake in its DirecTV arm to private equity group TPG.

This is all part of AT&T’s desire to focus on its ‘pure play’ telecoms offering, and 5G in particular. It recently announced a partnership with Swedish 5G experts Ericsson to utilise its knowledge and technology in the US.

Over the last 12 months, the AT&T share price has dropped 7.7% compared with peers such as Verizon [VZ] which has fallen 10.7% and T-Mobile [TMUS] which has risen by 1.65%.

This compares with the S&P 500, which has climbed 28.4%.

 

AT&T’s previous earnings report performance

In its second-quarter, AT&T recorded earnings per share of $0.89, up 7% from a year earlier and ahead of forecasts of $0.79. Revenues came in at $44bn, up 7.6% and ahead of forecasts of $42.64bn.

It added 789,000 postpaid wireless phone customers against forecasts of a 287,000 gain.

Analyst Craig Moffett of MoffettNathanson said, “[AT&T is] pulling out all the stops to generate unit growth, even if that means rather muted growth in EBITDA,” adding that promotional activity led to subscriber growth at a “blistering pace”.

“Other than cost-cutting, the company is primarily relying on mobility revenue growth, but doing so at the expense of margins with aggressive handset subsidies" - Timothy Horan, Oppenheimer analyst

 

 

Wall Street expectations for upcoming earnings

According to analysts at Zacks, AT&T is expected to post third quarterly earnings of $0.79 per share which represents a year-over-year growth of 4%. Revenues are expected to be $41.42bn, down 2.2%.

Oppenheimer analyst Timothy Horan stated: “Other than cost-cutting, the company is primarily relying on mobility revenue growth, but doing so at the expense of margins with aggressive handset subsidies. Competition with cable/wireless is reaching a tipping point, as both are bundling the other sector's service at a discount, setting up an industry market share war probably starting earnestly in a year."  

More communication is needed from AT&T on its growth plans, as more uncertainty could lead to further share price falls.

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