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Here's Why Investing in AT&T Is a Good Idea

June 24, 2014 | About:
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kcpl

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AT&T (T) is making rapid progress in adding more customers, and it is on track to challenge Verizon's supremacy in the telecom industry. The company is making aggressive investments in its network and this should help it continue its strong momentum. Let's take a closer look at AT&T's prospects and see why it is a solid long-term bet.

Rapid customer growth

AT&T's Mobile Share accounts and connections increased sharply in the previous quarter, rising by more than 50% since year-end and tripling year-over-year. Second, a major chunk of the subscribers opted for and migrated to mobile share plans up 10 gigs or higher. These customers increased more than two-thirds of mobile share account activity with the gigabytes or higher plans in the quarter driving overall penetration to almost 50%, which is about 27% increase from the fourth quarter of 2013.

Finally, these new offerings lured about a million postpaid subscribers who were on unlimited plans to shift to mobile share pricing. All this drove the overall number of smartphones subscribers on tiered data pricing to 81%, about 6% point increase in just one quarter. Concurrently, it also added more than $1 million new postpaid smartphone customers that include customers who are staying with it and upgrading from feature phones.

There’s a huge consumer shift to mobile share plans, AT&T Next is tremendously popular among customers, an increasing total and postpaid net adds, and the transitional way for the subsidy model. AT&T is making the buying process as open and transparent as possible and then letting customers manage the process. This is believed to be not only best for its customers, but best for its shareholders as well.

Other products gaining steam

U-verse TV continued to gain popularity with adding more than 200,000 subscribers and churn continued to reduce with growing penetration. And U-verse voice, voice-over-IP product surpassed 4 million customers.

There is a steady growth of strategic business services such as VPN, Ethernet, hosting and other advanced IP services constituting of more than 26% of total business wire-line revenue and growth has increased more than 16% year-over-year.

AT&T's Project Agile is also gaining traction. These are a set of new initiatives that is improving efficiency and illustrates how the company organizes and operates to deliver best-in-class customer experience as in all IP, all mobile and all cloud services company.

During the first quarter, AT&T acquired Leap which has clear and immediate benefits and value creation. From a strategic perspective, the acquisition of the Cricket brand accelerates its move into the prepaid space. It is also integrating Leap customers and its networks.

Valuation

According to Yahoo Finance, the trailing P/E and forward P/E ratios of 10.21 and 12.73, respectively, represent increasing cost and ineffective company operations. The PEG ratio of 2.36 is above 1 and very close to competitor Verizon Communications' 2.30, which is same as the industry’s average, indicating slow growth. However, investors are advised to buy AT&T's shares and enjoy satisfactory returns in the long run given the fact that the expected earnings CAGR for the next 5 years is 5.60%, which is very close to the industry’s average of 6.21%.

Moreover, since AT&T is investing aggressively in the network to improve its position in the industry, it should be able to deliver solid growth going forward.


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