Long-established in the Telecommunication Services industry, AT&T Inc (T, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 0.23%, juxtaposed with a three-month change of 8.04%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of AT&T Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 7/10
- Growth rank: 3/10
- GF Value rank: 3/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned AT&T Inc the GF Score of 68 out of 100, which signals poor future outperformance potential.
Understanding AT&T Inc Business
AT&T Inc, with a market cap of $201.15 billion and sales of $122.93 billion, is a major player in the telecommunications sector. The wireless business contributes nearly 70% of AT&T's revenue, making it the third-largest US wireless carrier, connecting 73 million postpaid and 17 million prepaid phone customers. Fixed-line enterprise services, which account for about 15% of revenue, include internet access, private networking, security, voice, and wholesale network capacity. Residential fixed-line services, about 11% of revenue, primarily consist of broadband internet access, serving 14 million customers. AT&T also has a sizable presence in Mexico, with 24 million customers, but this business only accounts for 3% of revenue. The firm has agreed to sell its 70% equity stake in satellite television provider DirecTV to its partner, private equity firm TPG.
Financial Strength Breakdown
AT&T Inc's financial strength indicators present some concerning insights about the company's balance sheet health. AT&T Inc has an interest coverage ratio of 3.64, which positions it worse than 58.11% of 296 companies in the Telecommunication Services industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.92, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.05 indicates a struggle in handling existing debt levels.
Growth Prospects
A lack of significant growth is another area where AT&T Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -1.7% per year over the past three years, which underperforms worse than 71.31% of 359 companies in the Telecommunication Services industry. Stagnating revenues may pose concerns in a fast-evolving market.
Over the past five years, AT&T Inc has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -5.1%, while the five-year growth rate is at -1.8%. These figures underscore potential challenges in the company's profitability. Lastly, AT&T Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
In conclusion, AT&T Inc's financial strength, profitability, and growth metrics, as highlighted by the GF Score, suggest potential underperformance in the future. The company's challenges in managing debt, declining revenue, and low growth prospects are significant factors that could hinder its ability to outperform. Investors should carefully consider these aspects when evaluating AT&T Inc's potential for future growth. For those seeking companies with stronger GF Scores, GuruFocus Premium members can explore more options using the following screener link: GF Score Screen.
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.
