Shiny New Structure Makes AT&T Stock a Bigger Buy

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With two acquisitions in Mexico and the purchase of DirecTV, AT&T (T) looks a lot different than it did just one year ago.

AT&T stock

In the past, AT&T reported earnings as wireline and wireless. However, after completing several acquisitions over the past year, AT&T has decided to operate in four segments: Business Solutions, Entertainment & Internet Services, Consumer Mobility and International.

While the company is known for its wireless services, there is a lot more to AT&T than meets the eye. And from this point forward, AT&T stock investors will be better able to assess the company’s performance, which is ultimately good for T stock.

Here’s why the new structure makes AT&T stock an even bigger buy.

A Closer Look at the New AT&T Segments

AT&T’s Business Solutions will be its largest segment, and includes both wireline and wireless services that are sold to businesses, or individual subscribers who purchase plans through their employers. This is a consistent business where AT&T dominates the competition, but investors shouldn’t expect explosive growth.

The Entertainment & Internet Services segment includes TV and broadband internet services provided to residential customers, such as U-Verse and DirecTV. This segment should produce significant growth and be very profitable due to the inclusion of DirecTV’s U.S. operations, where T stock generated most of its $3 billion in free cash flow during the past 12 months.

Further, AT&T’s consumer U-Verse revenue grew 19.2% to $4.2 billion during its last quarter. Unfortunately, this business was rolled into AT&T’s wireline segment, which saw an overall revenue decline of 2.9% to $14.2 billion. Now that U-Verse is being put into its own separate segment with DirecTV’s U.S. business, it should finally get the opportunity to shine.

The Consumer Mobility segment will provide wireless services to residential customers. Basically, anything that connects to AT&T’s mobile network will be included in this segment. While the U.S. wireless market may be fully penetrated by user count, there is still a great growth opportunity as AT&T enters new businesses like the connected car, and as consumers add new devices to their mobile network.

Between 2014 and 2019, Cisco expects mobile data consumption to rise at a compound annualized rate of 57%. Consumer Mobility will gain from this growth.

The Wildcard for AT&T Stock

Finally, there is AT&T’s International business. Though it’s small right now, the segment is a wildcard that could drive AT&T stock higher for many years to come. The international segment includes its two recent wireless acquisitions in Mexico, DirecTV’s Latin American TV business, and broadband services in Latin America.

True, America Movil controls well over 75% of the Mexican market, but AT&T has a good shot to enter Mexico, undercut prices, improve performance and steal customers. In total, Mexico is a 100 million subscriber opportunity, and with AT&T ready to invest $3 billion in the region, America Movil had better get ready to see its market share decline substantially.

Latin America remains a very underdeveloped region for wireless and broadband services, yet DirecTV’s spectrum portfolio covers more than 50 million households for broadband use. The potential to gain another 50 million users in a major segment is a great opportunity for AT&T stock and the company. At the moment, AT&T’s priority with that network appears to be focused on broadband internet, but it also opens the door for AT&T to enter the region as a wireless service provider later on.

More Reason to Buy AT&T Stock

All things considered, AT&T is expected to report $152.7 billion in revenue this year and $171.8 billion next year. The new structure gives investors better insights into the growth and performance in businesses like U-Verse and internationally, which would otherwise be obscured by the company’s enormous size.

AT&T’s new segments create transparency, and although its Consumer Mobility and International segments might be smallest, both are important to the future of the company and AT&T stock.

This new structure will also create new leadership roles for smaller, more regional parts of the business. And lastly, the reorganization sets the stage for a spinoff years down the road if the company decides one of its parts can perform better independently from AT&T stock.

As a result, investors should really like this new format, providing yet one more reason to buy AT&T stock, which only trades at 12 times next year’s earnings with expectations for double-digit growth and a 5.6% dividend yield.

As of this writing, Brian Nichols was long AT&T.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/four-new-operating-segments-mean-att-stock/.

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