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Dow-30 Earnings: AT&T Inc. – Fourth Quarter 2013
AT&T (T - Free AT&T Stock Report), the largest communications provider in the country, has posted mixed fourth-quarter results, putting modest downward pressure on this Dow component, although the stock did manage to pare its initial sharper loss. Share net of $0.53 for the period was $0.02 ahead of our estimate and Wall Street's consensus view of $0.51, thanks to good cost management, wireless margin improvement, and increased penetration of U-verse, the company's broadband, video, and IP telephone service. Yet, the key wireless business, which has been a cash cow and the main growth engine in recent years, added just 566,000 contract customers in the quarter, with most clients inking deals to use tablets rather than smartphones. This was better than the September-interim showing, but the subscriber growth still lagged that of many sector rivals, including T-Mobile US. That smaller competitor has been aggressively challenging AT&T in its advertising campaigns, and winning over new customers with its attractive pricing plans.
In the meantime, investors seem disappointed with AT&T's 2014 guidance, particularly in regard to free cash flow (that supports stock buybacks and the dividend payout). Still, the guidance looks decent to us; it calls for 2%-3% revenue growth, further margin expansion across the wireless division, and share-net advances in the mid-single digits. Cash flow also appears to be more than sufficient, though it will likely be hampered a bit by higher taxes, an uptick in spending on the ''Project Velocity'' network expansion initiative, and the rollout of the ''Next'' early upgrade plan.
All in all, the fourth-quarter report and accompanying forward guidance weren't all that bad, in our view, though we are trimming our 2014 share earnings call by a nickel, to $2.65. (This would represent a 6% increase from 2013.) We continue to like the stock as a long-term play for conservative, income-oriented accounts, too, and think that investors would do well to build positions at these depressed levels. An acceleration in wireless subscriber growth should be a critical catalyst here, since wireless metrics are closely tracked by the Wall Street crowd. And we see the subscriber numbers gradually getting better once AT&T further shores up its network, the ''Next'' plan gains more traction, and the acquisition of prepaid carrier Leap Wireless closes (likely in the first half of this year). That deal will go a long way, we think, toward helping the company fend off competitors and win lower-income consumers.
About The Company: AT&T, formerly SBC Communications, is one of the world’s largest telecom holding companies and is the largest in the United States. Its traditional (SBC only) wireline subsidiaries provide services in 13 states, including California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada. The company also owns Cingular (now AT&T Wireless). It has made a number of acquisitions, including PacTel (April 1997), SNET (October 1998), Ameritech (October 1999), AT&T (November 2005), and BellSouth (December 2006). It operates a total number of consumer revenue connections of 39.3 million. In 2012, about 56% of its sales came from wireless, 18% from wireline voice operations, 25% were from the data segment, and the remainder from advertising.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.