AT&T Inc. (T) Stock Enters a New Media Era

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The word is official: Time Warner Inc (NYSE:TWX) stockholders have approved the merger with AT&T Inc. (NYSE:T). Thus, in a matter of two years, AT&T stock has gone from moribund telecom play with a great dividend to a media powerhouse with a great dividend.

T Stock: AT&T Inc. (T) Stock Enters a New Media Era

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After first buying up DirecTV, and then grabbing for TWX, AT&T stock has clearly announced that it is no longer for widows and orphans.

How T Stock Is Boosted by TWX

The moves signal to investors that T stock is now about looking to the future, when communications and content are what will matter. It’s a bit dicey for AT&T stock, in that being a distributor of content via its DirecTV and U-verse products can be very lucrative. The problem is that DirecTV’s growth has been flagging.

With Time Warner’s cable assets bundled with its own cable and satellite offerings, and all the technology associated with telecom and communications in general, T stock now has the power to essentially deliver anything and everything to anywhere and everywhere.

The TWX purchase also gives it a content production house. Warner Bros. Studios has always been one of the most successful studios in Hollywood. It also owns the DC Comics franchises, which includes Batman and Superman. With Geoff Johns now in charge of moving the DC properties forward, it puts Time Warner on track to maximizing the potential of its comic book properties.

(Little-known fact: Johns and Walt Disney Co’s (NYSE:DIS) Marvel chief Kevin Feige worked together for many years prior to their current stints. They are cut from the same very successful cloth).

Of course, Time Warner also owns Home Box Office. While there is talk of spinning HBO off, for the time being, it remains the premier original programming source. It guarantees that Netflix, Inc. (NASDAQ:NFLX) will have to keep chasing HBO’s brand. Thus, AT&T become an effective competitor to NFLX. The desire for original branded content, especially quality content, is only going to increase.

With the TWX purchase, AT&T stock moves from moribund slacker to Peter Lynch stalwart. It boosts T stock’s free cash flow from about $16 billion to about $20 billion, and there will likely be saving and synergies from the cable businesses overlapping.

AT&T stock also carries an astonishing $141 billion in long-term debt, yet debt service is comparably negligible, and there is even more room for dividend increases going forward. I wouldn’t expect anything just yet, but it isn’t unlikely.

There is one possible hurdle, but that creates a big opportunity for investors. There is some doubt about whether the Federal government will approve the merger. I frankly do not see this as an obstacle at all. Yet as a result, TWX stock trades at $96, while the bid was for $107.50 per share. That differential is an arbitrage you can play as investors.

Yes, you can just buy T stock; however, the deal is expected to close at the end of 2017. With the DirecTV acquisition, it took over a year for the deal to get done and the market also factored in a 10% discount based on skepticism that the deal would make. Thus, if you sold naked puts against DIRECTV over and over again, as I did, you made a pretty penny while time marched on.

With the AT&T dividend safe, and T stock in a good position to survive no matter what, as well as TWX stock still being a great buy even if the merger blew up, you can sell naked puts here too.

I would consider selling the TWX July $97.50 naked puts for $4.40. You get $440 per contract, or a 4.5% return for a five-month holding period. Or you could go large — assume the merger goes through and sell the Jan 2018 $105 naked puts for $9.30. TWX will go out at $107 in the merger and the stock won’t get put to you.

Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


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