AT&T Inc (T, Financial) experienced a daily gain of 6.77%, with a 3-month gain of 7.04%. Despite reporting a Loss Per Share of 1.22, the stock appears to be fairly valued. This article aims to provide a comprehensive analysis of AT&T's valuation, financial strength, profitability, and growth. We encourage you to read on for a detailed breakdown.
Company Overview
AT&T Inc (T, Financial) is a major player in the telecommunications industry, with its wireless business contributing about two thirds of its revenue. The firm serves 70 million postpaid and 18 million prepaid phone customers, making it the third-largest U.S. wireless carrier. It also offers fixed-line enterprise services and residential fixed-line services, accounting for 18% and 11% of its revenue, respectively. AT&T also has a significant presence in Mexico, serving 22 million customers. Despite its diversified operations, AT&T's stock is trading at $15.29 per share, close to its fair value (GF Value) of $15.85.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
According to the GF Value, AT&T (T, Financial) appears to be fairly valued. The stock's current price of $15.29 per share and the market cap of $109.30 billion align closely with our estimate. This suggests that the long-term return of AT&T's stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with strong financial strength reduces the risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Unfortunately, AT&T's cash-to-debt ratio of 0.06 is lower than 84.24% of companies in the Telecommunication Services industry, suggesting poor financial strength.
Profitability and Growth
Companies with high and consistent profitability are generally safer investments. AT&T has been profitable for 8 of the past 10 years, with an operating margin of 19.92%, ranking better than 77.58% of companies in its industry. However, its growth has been disappointing, with an average annual revenue decline of 13.6% and a 3-year average EBITDA decline of 28.2%.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) can provide insights into its profitability. AT&T's ROIC of 11.54 is higher than its WACC of 5.32, indicating effective use of capital.
Conclusion
In conclusion, AT&T's stock appears to be fairly valued, considering its financial condition, profitability, and growth prospects. Despite its poor financial strength and disappointing growth, its profitability is fair. For more detailed financials of AT&T, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
