AT&T: The 2 Metrics That Matter Right Now

Dec. 27, 2018 3:52 PM ETAT&T Inc. (T)74 Comments
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WG Investment Research


  • AT&T's stock has underperformed the broader market over the last 1-, 3-, and 5-year periods.
  • However, I believe that AT&T will perform well if management is able to show improvements to two key metrics (free cash flow and financial leverage position).
  • I am long AT&T and I look forward to collecting the rich (and safe) dividend while the company's story plays out in 2019 and beyond.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Start your free trial today »

2018 has been the year of change for AT&T (NYSE:T) and, to be honest, I am sure that this company's management team is looking forward to starting a new year. AT&T closed the Time Warner acquisition in 2018 (well, sort of) and its management team has consistently provided a bullish outlook but, at the end of the day, the market is not yet sold on what Mr. Randall Stephenson, CEO, and team are selling.

ChartT data by YCharts

AT&T's stock has been a consistent underperformer (i.e., the 1-, 3-, and 5-year stock performance is nothing to write home about) but, in my opinion, there are reasons to be optimistic about what 2019 may bring for this large company. There are a few things that need to fall into place - finalize the Time Warner deal, an efficient & effective 5G rollout, and get some "wins" in the streaming space - but I believe that there are two main metrics that have a material impact on the investment thesis. AT&T is (and has been) viewed as an income play, so investors should mostly be concerned about the sustainability of the dividend; therefore, I believe that investors will need to keep a close eye on the two metrics that really matter right now: (1) free cash flow metrics and (2) financial leverage.

Free Cash Flow ("FCF"), The Dividend Is Safe

To start, I believe that AT&T has the capacity to support its rich [and growing] dividend for the foreseeable future, but that does not mean that it will be smooth sailing over the next 12-18 months. Market sentiment has the real potential to wreak serious havoc if AT&T fails to manage the story - that is, fears/concerns can play a more significant role than the actual fundamentals when it comes to the performance of the stock. The stock performance over the

ChartT Financial Debt (Quarterly) data by YCharts

ChartT Current Ratio (Quarterly) data by YCharts

ChartT Price to Free Cash Flow (TTM) data by YCharts

ChartT PE Ratio (TTM) data by YCharts

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long T, VZ. 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.

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