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AT&T: Just Buckle Your Chin Strap And Buy

Feb. 05, 2019 8:01 AM ETAT&T Inc. (T)254 Comments


  • AT&T is down 20% over the year and 5% this week on weak fourth quarter wireless adds and a revenue miss of $510 million, although up 15.2% year-over-year.
  • The stock has bounced back a bit. I say the selloff on earnings was unjust. You best buckle your chin strap and buy the dip before it's gone.
  • In the following piece, I make the bull case.
  • This idea was discussed in more depth with members of my private investing community, Discovered Dividends. Start your free trial today »

What Happened?

AT&T (NYSE:T) shares took a nosedive after reporting fourth quarter results that met adjusted EPS estimates, beat on GAAP EPS, yet missed on revenue.

Even so, revenue was up 15% year-over-year. CEO Randal Stephenson stated:

"I would characterize our results as basically doing exactly what we committed during our Analyst Day in November and in fact I would say we're ahead of schedule on each of our key priorities, and as we said our top priority for 2019 is driving down the debt from the Time Warner acquisition, and I couldn't be more pleased that how we close the year.

We generated record free cash flow of $7.9 billion in the fourth quarter with the dividend payout as a percent of free cash flow below 50%. Our full-year free cash flow was also an all-time record even with near record capital spending. For the full year, our dividend payout as a percent of free cash flow was 60% and that allowed us to increase the dividend in December for the 35th consecutive year."

I feel those who sold missed the forest through the trees, so to speak. AT&T is just getting started. Below are my positive takeaways from the earnings report.

Summary of 2018 Highlights

  • FY19 outlook has FCF around $26B
  • Low single-digit EPS growth (consensus: +2%)
  • Dividend payout ratio in the high 50s percent range
  • North America wireless net adds, 3.8M, U.S. phone net adds, 147K, postpaid net adds 134K (consensus: 208K), prepaid phone net adds, 13K, branded smartphone adds, 467K.

Did you catch that first bullet point? They had $22 billion in FCF last year and expect $26 billion for 2019. I like that year-over-year gain. The payout ratio is great at 50%. The amazing thing is that's 50% of a substantial sum of money, leaving you with $12 billion or so to

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This article was written by

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The #1 Service for Income Coupled With Growth Targeting 20% Total Return
I have been a Seeking Alpha Contributor for over a decade. I became a CNBC Contributor in 2015 for having the #1 track record according to stock pick returns. I was also featured in BARRON'S for being the Top Performing Financial Expert according to TipRanks from 2010-15. In 2020, I was named "Blogger of the Decade" on Yahoo Finance for having the best stock picking track record from 2010 to 2020. In addition, I am a currently a licensed REALTOR® in the state of Texas, a former FINRA registered OIl & Gas securities representative, banking industry executive with Citibank, and auditor with EY, a major accounting firm. I received my BBA in Accounting (With Honors) from the University of Texas - San Antonio. 

I am a self-made man and started out my career in the US Army's 10th Mountain Division as a Mountain Infantryman. I am a member of the DAV and a Disabled Veteran. I  have managed my own portfolio for the past 30 years. This includes successfully navigating the 2000 and 2008 bubbles, so I completely understand the full cycle the market can take. People who know me in investing circles call me the "Bubble Surfer" for my ability to preserve capital during times of duress. My professional background has provided me with an intimate knowledge of corporate financial statements and how companies actually make money. This expertise and wisdom is the value I wish to share with you. Here is a profile of me featured in the Globe and Mail detailing my career.

DISCLAIMER: David Alton Clark is not a Registered Investment Advisor or Financial Planner. The Information in his articles and his comments on SeekingAlpha.com or elsewhere to be used as a starting point for your own due diligence. Do your own research and always consult a registered investment Advisor.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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