AT&T Finding Value In Telecom With New Growth Drivers

Apr.17.14 | About: AT&T Inc. (T)

Summary

T trades at a significant discount to the S&P 500 on a current and forward earnings basis.

T dividend yield is 2.6x market yield, buyback yield is even more compelling.

Wireline growth concerns depress stock but management executing on new growth drivers.

AT&T By the Numbers

T

S&P 500

Premium/Discount

Market Cap

187.97B

Enterprise Value

255.15B

Trailing P/E

10.65

17.61

-39.52%

Forward P/E

12.76

15.44

-17.36%

EBITDA

46.73B

EV/EBITDA

5.46

Dividend Yield

5.20%

1.99%

161.31%

Dividend & Buyback Yield

12.03%

Source: Yahoo Finance & Wall Street Journal

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AT&T (NYSE:T) trades at a heavy discount to the market. Looking at the numbers below T trades at a discount to the S&P 500 (NYSEARCA:SPY) on both a current and forward earnings basis. T does carry substantial debt and therefore an enterprise valuation framework applies as well. T has an EV of $255 Billion generating EBITDA of $46.7 Billion resulting in a modest EV/EBITDA ratio of 5.46

Dividend Yield of 5.45% is a substantial premium to the market dividend yield of 1.99%. T's total yield including buybacks is even more compelling with a net payout yield of 12%.

T is trading at a deep discount and while it operates in a mature business with declining landline market many growth drivers remain.

  • Mobile data is now $23 billion in revenue growing at 17%
  • U-verse is now $13 billion of revenue and growing at 28%
  • Business services is now $9 billion and growing at 17%

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We recommend buying T based on a compelling valuation and cash returns to shareholders. Growth concerns from legacy businesses are weighing on the stock price yet management continues to invest and execute on growth drivers.

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Disclosure: I am long T. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.