What To Expect From AT&T's Earnings Report

| About: AT&T Inc. (T)

Summary

AT&T is scheduled to report its first-quarter 2016 financial results on Tuesday, April 26, after market close.

According to 25 analysts' average estimate, it is expected to post a profit of $0.69 a share, a 9.5% rise from its actual earnings for the same quarter a year ago.

T's stock is an excellent candidate for diversified, large-cap dividend stock portfolio. The company is generating strong free cash flow, and the dividend yield is high at 5.0%.

The average target price of the top analysts is at $40.86, up 6.1% from its April 8 close price, however, in my opinion, shares could go much higher.

AT&T (NYSE:T) has come out of a good year, and according to the company, it is optimistic that those trends can continue. AT&T had good results in 2015; it saw its wireless margins expanding to record rates. Also, it achieved real growth in strategic services, healthy growth in its prepaid business, and good growth in its Internet of Things connections. In addition, the company has got a great entertainment product now in the DirecTV acquisition. AT&T continues to be focused on profitable products, and so it will, as it did last year, shy away from those that are not panning out.

According to the company, there was a slowdown in the handset upgrade cycle or the total sales in the fourth quarter, and it might also continue in 2016. Also, it will continue to see some foreign exchange issues with its expanded Latin American base. However, the company said that those are impacts possibly on revenues, but very little effect at all on profitability because those are all hedged one way or another with the handset expenses or with expenses in foreign countries that are denominated in those same foreign currencies.

AT&T is scheduled to report its first-quarter 2016 financial results on Tuesday, April 26, after market close. According to 25 analysts' average estimate, AT&T is expected to post a profit of $0.69 a share, a 9.5% rise from its actual earnings for the same quarter a year ago. The highest estimate is for a profit of $0.72 a share while the lowest is for a profit of $0.66 a share. Revenue for the first quarter is expected to increase 25.3% year over year to $40.82 billion, according to 22 analysts' average estimate. There were two up revisions during the last seven days and three EPS up revisions during the last 30 days. Since AT&T has shown earnings per share surprise in three of its last four quarters, as shown in the table below, there is a good chance that the company will beat estimates also in the first quarter.

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Data: Yahoo Finance

As I see it, T's stock is an excellent candidate for a diversified, large-cap dividend stock portfolio. The company is generating strong free cash flow, and the dividend yield is high at 5.0%. AT&T has increased its annual dividend for 32 straight years. The latest increase was announced in December, when the company boosted its quarterly payout by 2.1% to $0.48 a share. The company's free cash flow in 2015 was at $15.9 billion while its paid dividends were at $10.2 billion, making the full-year free cash flow to dividend payout ratio 64%.

T Dividend Chart

T Dividend data by YCharts

Since the beginning of the year, AT&T's stock is up 11.9% while the S&P 500 Index has increased 0.2%, and the NASDAQ Composite Index has lost 3.1%. However, since the beginning of 2012, AT&T's stock has gained only 27.3%. In this period, the S&P 500 Index has increased 62.8%, and the NASDAQ Composite Index has risen 86.2%. According to TipRanks, the average target price of the top analysts is at $40.86, up 6.1% from its April 8 close price, however, in my opinion, shares could go much higher.

T Daily Chart

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T Weekly Chart

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Charts: TradeStation Group, Inc.

At Deutsche Bank Media, Internet & Telecom Conference on March 09, John Stephens, AT&T's Senior EVP and CFO, presented the company's three priorities. One is the DirecTV merger integration. According to Mr. Stephens, AT&T needs to focus on getting all that integration work or as much of it behind it as possible. The company's goal for the year is to come out of the year with a $1.5 billion cost run rate savings on track to a three-year goal of $2.5 billion or more. The second goal is to focus on taking this great set of assets and providing integrated coordinated products and services to its customers. The company is on track to do that with its mobility business and with its entertainment business and coordinating how it delivers an integrated solution that is easy to use and high value to its customers in the video, in mobility, communications, and broadband. The third focus is becoming the low-cost provider in the industry, and for AT&T, that means fulfilling its Project Agile. The company set a target out for $3 billion of run rate savings a few years ago, and it is well on the way.

All in all, I see continued healthy growth prospects for the company. AT&T finished last year strong. It had double-digit growth in consolidated revenues, adjusted earnings, and free cash flow. At the same time, according to the company, it continues to see margin expansion in every segment of its domestic business. What's more, the company is on track to accomplish its goals.

Summary

AT&T is scheduled to report its first-quarter 2016 financial results on Tuesday, April 26, after market close. According to 25 analysts' average estimate, it is expected to post a profit of $0.69 a share, a 9.5% rise from its actual earnings for the same quarter a year ago. There were two up revisions during the last seven days and three EPS up revisions during the last 30 days. Since AT&T has shown earnings per share surprise in three of its last four quarters, there is a good chance that the company will beat estimates also in the first quarter. As I see it, T's stock is an excellent candidate for diversified, large-cap dividend stock portfolio. The company is generating strong free cash flow, and the dividend yield is high at 5.0%. AT&T has increased its annual dividend for 32 straight years. The average target price of the top analysts is at $40.86, up 6.1% from its April 8 close price, however, in my opinion, shares could go much higher.

Disclosure: I am/we are 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.