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Is AT&T Stock A Buy Or Sell Before WarnerMedia Spin Off? Not Too Late

Mar. 03, 2022 12:36 PM ETAT&T Inc. (T)WBD, NFLX224 Comments


  • AT&T is set to spin off WarnerMedia sometime in April.
  • The new company will have a large content library, but a lot of leverage.
  • AT&T has underperformed the broader market over the past two decades by 400%.
  • Is AT&T a buy? The stock is cheap, but management miscues muddy the outlook.
  • Looking for a helping hand in the market? Members of Best Of Breed get exclusive ideas and guidance to navigate any climate. Learn More »

AT&T central office. AT&T wrapped up its merger with WarnerMedia and now controls HBO, CNN and DirecTV

jetcityimage/iStock Editorial via Getty Images

AT&T (NYSE:T) is set to spin off WarnerMedia into a new video streaming powerhouse sometime in April, and investors are forgiven if they are wondering what to do with the stock in the meantime. As

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Julian Lin profile picture

Julian Lin is a top ranked financial analyst. Julian Lin runs Best Of Breed Growth Stocks, a research service uncovering high conviction ideas in the winners of tomorrow. 

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Comments (224)

value1m profile picture
$VEON bottom T of East EU
Senior Vagabond profile picture
I own 2000 shares of T bought in 2020 @ sub $30. I have always despised the company's management and terrible execution but gave them a try with some idle cash for the high dividend and a hopeful stable or slight increase in stock price. Obviously neither worked out. I just want to get back to even. If I sell the approx 480 shares of the WBD spinoff won't that be free cash or do you think the share price of T will fall to an equal or greater level after the closing to offset any possible gain with WBD? Excuse me for my ignorance but this whole thing I have found very confusing.
@Senior Vagabond Sub $30 price for $T is not bad for a long term investor. Many analysts have increased their target for $T after the March 11 investor meeting. Yes, $T stock will go down on the day the spin off is complete but you should look at what $T and WMD can do 6 months or longer after this spin-off. If this time frame is not good for you then $T stock is not for you. Remember, $T should have over 6% after spin off.
@Senior Vagabond I've posted this elsewhere - I've been critical of T (and T holders) for a long time. But I think mgmt is making the right moves now and I think they will follow thru. T can now concentrate on what they do best (5G), with a div that's comparable to their rivals, and WM will be owned by a company that knows what to do with them. I recently switched my monthly Roth deduction purchase all T, and before the end of March I'll be sending in enuff to ensure that the max contribution allowed for the year purchases T. I think they have a good future, plus the new company will be good as well. Like you, I have no idea where T or WBD will land, price wise. I just think when the dust settles and WS makes some decisions, both will be a good hold.
@Senior Vagabond looks like you are suffering from an acute case of evenitus! there is no vaccine for it and wearing a mask will not help! (ps joking- I'm underwater in T myself)
value1m profile picture
Veon .35ish might bottom mobile phones East europe and asia service.
I beleive will recover to 2 plus after this war.
Rose_Colored_Glasses profile picture
Oddly there’s never a good time to buy or sell T.
Hold you shares. Do not sell. Paid bashers here to help shorts cover cheaply.
ckarabin profile picture
Funny how people are still bashing AT&T stock in the blog comments below. Do they know that Batman is an AT&T property? (Time Warner) I'm reading here that it grossed a quarter billion in its first weekend! Yup, that Time Warner is useless! And AT&T shareholders own it.
Just the Millionaire next door profile picture
@ckarabin They have a lot of properties but never grow the business smh!
ckarabin profile picture
@Just the Millionaire next door Because the wasted so much capital on their ill fated media adventure. But that's over now, so no sense focusing on the past. Media is gone, under professional media management next month. That in itself is reason to think it will be worth more after the split than it is now. Taking a media business and pulling it away from stodgy telecom guys and putting it under media experts will add value right there.
The Batman by Warner - 248.5m first opening weekend.


SUNDAY UPDATE, Refresh for latest…: Warner Bros/DC’s The Batman winged into 74 offshore markets this weekend, landing $120M at the international box office through Sunday. Combined with the $128.5M domestic start, the global launch is $248.5M.

The Matt Reeves-directed Batman was No. 1 in 73 of its openings, and came in at the high end of the range we were seeing ahead of the weekend. The international start is the industry’s best for 2022 (No. 3 for the pandemic when backing out China and Russia) and the biggest for Warner Bros since Joker in 2019, as well as the top international bow ever for Reeves.
Morgan Stanley says AT&T’s WarnerMedia spinoff should ‘unlock value,’ drive upside for stock.

Morgan Stanley has taken a bullish stance on AT&T stock (T -0.7%), with a catalyst-driven take that the upcoming spin-off of its shares for the Warner Bros. Discovery deal will unlock value in communications.

The update comes ahead of AT&T's investor day on March 11, where some additional details are expected on AT&T's Communications business going forward. Discovery's shareholder vote on the deal comes that day as well.


Pts117 profile picture

Yes, it will. This is a $34 stock selling for $24…
"The annual dividend will be slashed to $1.11 per share, representing just over a 4% dividend yield."

You would need to walk me through your math on this. @4.25% dividend you would have a stock price of a little over $26 after the spin.

So $26 a share plus lets say DISCA is trading @$28 so that's ~$7. That makes T worth ~$33 today.

That is clearly not going to happen.
ckarabin profile picture
@q123we Let's take the current stock price of $23 and assume the spinoff will be worth $7. The AT&T telecom will be worth the other part of only $16, yet will have cash flow of $4.50 per share and free cash flow of $3 per share, paying a $1.16 dividend and yield 7.25%!

Then we can focus on Discovery Time Warner and realize that TW sold for 8x earnings as part of AT&T. Do we really think that it will sell for only 8x after it spins off? Especially when it is producing films that gross a quarter billion in their opening weekend?
Well Julian, you've hit the highlights and lowlights and summed up the bulls and the bears arguments, which both have some virtue. Will be interesting to see what T's upcoming media session adds to the debate, which will no doubt rage until the merger is completed, and then it's off to the races - or the knacker house.
Longtime holder of T and the Bell's before. Have had for decades large holdings in Verizon as well that I added to recently when the share price was in the $52-$50 range as I did with T when it hit the $24-$22 price slump. Also have holdings in Canadian (BCE), British (VOD below $16), French ORAN), German (DTEGY), and Spanish (TEF) telecom. Have long been displeased with T's foray into the decadence of the media-run entertainment industry with the acquisition of Direct TV and Time Warner, the latter of which I was so hoping the U.S. District courts would block, burying the hopes of a merger deep in a well deserved grave. Now that T is divesting itself of this dross and unloading debt on this new media conglomerate I could not be more pleased. May hold these dividend-less spin off shares for 6 months or so to see if they appreciate before purging my portfolio, but I'm not holding my breath in suspense. Don't want to hear anymore about Batman and Super Hero fantasy - only about the core business of telecommunication.
@canoeistww “…I was so hoping the U.S. District courts would block…”

In an alternate timeline the T-Mobile merger was approved and while the DirectTV buy still happened, the Time Warner buy did not. And T shareholders today enjoy a $47 stock.

However in that alternate timeline, there is not the opportunity with T and WBD at low prices that exists here.
Netflix is overvalued by at least 114B.


Dropped 20% in the last 5-weeks. Will be cut by half in 2022.

Just like you recommended Amazon and Canabis stocks early 2022. Dropped 15% and 30% since.

Besides your key thesis is that WBD debt is high BUT it’s assets are HUGE. In addition you fail to mention that the cost of borrowing 50B is negligible in relative terms to make a firm unable to compete. These are your two critical flaws.
Point 1: Time Warner will most likely be better run as part of Warner Brothers Discovery (WBD). They will have synergies to reduce expenses and increase Average Revenue per User (ARPU) and will be more valuable in this arrangement. We get about 0.24 shares of WBD at DISC valuation per AT&T share which allows shareholders to switch to one or the other based on supply and demand. A no brainer really,

Point 2: Also, I am happy that the dividend is going to be reduced, closer to the industry standard as I would rather have 6 7B per year less dividend payments staying in the coffers and see the money reducing the debt, reinvested or used to buy back stock.

Point 3: T > 54B EBITDA in 2020 and in 2021.

Point 4: Market cap ~ 3 X EBITDA while rates are close to zero.

Point 5: Net debt < 3 x EBITDA.

Point 6: 6B per year ongoing cost reductions.

Point 7: Whatever they are using to invest is to increase earnings in strategically key growth areas.

Point 8: 3B per year in less interest payments (1.6B) as a result of the reduced debt with spin-off and improved credit rating (cost reductions, less debt, less dividends).

Point 9: About 6% for Legacy T @ 19$ in a very low interest environment.

Point 10: Any share price appreciation is on top and above the 6%.

Point 11: Discovery deal is additional gravy here with Malone, Zaslav steering ship. Note Malone outperformed Buffet for many years.

Point 12: IMHO it would be smart to sell the 70% stake in DirecTV for 15B+ and use another 10B of the 43B debt reduction and repurchase 850m shares to drop the float down to 6.3-6.5B shares.

Plus we get 0.24 shares of WBD per shareholder.

T has a P/S ratio of 0.94. VZ a P/S of 1.54 while SHOP's is 72.99, and NFLX's is 9.55

Warner is larger than NFLX that has double market cap than T's entire company. You get for free Legacy T with $20B FCF, focusing on service, paying down debt, buying back shares, and paying decent dividends.
How far from reality. Source below from the NYT:

Netflix announced Tuesday in its fourth-quarter earnings report that it would not “need to raise external financing for our day-to-day operations,” a significant move for the heavily indebted company.

In less than a decade, the streaming giant borrowed over $16 billion to feed its titanic appetite for content. The reason: It didn’t make enough money to cover both its entertainment productions and its business costs, like payroll and rent and marketing.

That fact has caused a longstanding gripe over Netflix’s business model, and it’s why some observers have long argued that Netflix is a debt-ridden house of cards that would eventually come tumbling down.

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Reed Hastings, Netflix’s co-chief executive and co-founder, expected Hollywood would soon catch up in the streaming market, and the company stockpiled content as quickly as possible. To finance the hefty licensing and production costs, it borrowed the money. And kept borrowing.

The risk was clear: If Netflix didn’t generate enough cash by the time the debts came due, it would be in serious trouble. Mr. Hastings was betting that the company could attract subscribers (and raise its prices) faster than the debt clock was ticking. (Netflix was surprised that Hollywood waited years to jump into digital television, giving it an even bigger lead.)

The gambit seems to have worked. The company will still have $10 billion to $15 billion in debt, but it said it now made enough revenue to pay back those loans while maintaining its immense content budget.

nerd_rage profile picture
@Gabs_101 Hollywood (and opportunistic tech companies) gave NFLX a huge grace period but that period is over. I can't help noticing that in those top ten lists we see, there's a lot of NFLX and some DIS.

But think of all that we don't see on those lists - the hundreds of shows NFLX made to find that one hit vs DIS titles, where there isn't a huge backlog of loser shows that underpin every Loki or WandaVision - and it's obvious that DIS is far more efficient in uncovering their hits. Just stamp Star Wars or Marvel on it, and it's a hit.

That lack of efficiency may prove to be a problem for NFLX eventually.
@nerd_rage Is it really that they are more efficient, or just that they bought franchises, and just tag on to them?
MostlyLong Ranger profile picture
Even a losing team has cheerleaders
Julian Lin profile picture
@MostlyLong Ranger In Wall Street, especially losing teams have cheerleaders
toomuchgas profile picture
My feeling is that the Discovery spinoff stock will largely be sold since most T stockholders at in it for the dividend and Discovery will have no dividend.
Pts117 profile picture

It could be, but the move will be sitting on both of them for 6-12 months until the market realizes how much cash and income these two businesses are generating.
@toomuchgas I think that crowd has already flew the coop.
..."Yet I am skeptical that management will really stick to the game plan of paying down debt and eventually repurchasing shares...". This statement is pure conjecture. T management has clearly stated its goals/objectives for utilization of its prodigious cash flow: debt reduction, dividend increases, business growth investments, and share buybacks. The higher probability than your conjecture is T management sticks to the game plan this time because a) they are fully aware of the mistakes of the past and b) they want to maximize the value of their shares. Given all this, T offers a very attractive risk/reward currently and should be bought/owned at current levels. I am long T shares.
Julian Lin profile picture
@truckster "This statement is pure conjecture. T management has clearly stated its goals/objectives for utilization of its prodigious cash flow"

There's a track record, so unfortunately this isn't pure conjecture.
@Julian Lin
So presumptuous. The CEO knows he needs to reduce the debt and focus on drivers. That’s what he has been doing. More waste ? that ain’t gonna happen.
horribly mismanaged company- stock performance says it all imo!
Since disck is higher price of T…. Should I buy T or disck? Some people say that since disck is higher you will lose value in buying disck? Also the new Batman movie coming out is before the merger and I know they going to make a lot on this movie alone my question is does T get all the money from this movie or does some of it go to disck when they merge. So let’s say Batman sells like crazy does disck profit? Thanks
Julian Lin profile picture
@Taniawi It depends on the arbitrage. I haven't checked the details, but I'd assume Discovery would offer some discount prior to the merger (but not enough to get me interested)
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