Wireless communications giant AT&T Inc. (NYSE:T), which last week announced it is acquiring Straight Path Communications Inc (NYSEMKT:STRP) for $1.6 billion, is looking to distance itself from a crowded telecom space. But will T stock respond in kind? With the likes of T-Mobile US Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S) offering unlimited data plans and slashing their prices, AT&T had to make this move.
The Texas-based company needs to preserve not only market share, but also its profit margins.
And it has a better chance of achieving both by acquiring additional spectrum, especially with powerhouse Comcast Corporation (NASDAQ:CMCSA) looking to offer its own unlimited-data plan. And to say nothing about market leader Verizon Communications Inc. (NYSE:VZ).
T stock closed Thursday at $40.28, down 0.69%. The shares have declined 4.9% year-to-date, trailing the 4.8% rise of the S&P 500 index. And if you’ve held the stock over the last year, you’ve gained just 4%, while the S&P has returned 12%.
New Hope for AT&T Stock?
All told, Wall Street has not been enamored with growth prospects of AT&T stock. But assuming the company can close on Straight Path — one of the largest holders of 28 GHz and 39 GHz millimeter wave spectrum — T stock could have a straight line towards higher highs in the quarters ahead.
Aside from being a a spectrum-boosting positive for AT&T, Straight Path is a cost-effective deal for AT&T, which aims to add 5G capabilities to keep up with Verizon. Although it’s still in its infancy, 5G is the next-generation telecommunications standard that will soon eclipse 4G and will potentially provide internet speeds as much as 40 times faster. The deal has also caught the attention of Moody’s Investor Service:
“We view these deals as strategic positives, but not material to the near term (0 to 3 years) financial performance. However, these small strategic asset purchases are essential to AT&T remaining competitive and perpetuating its market share.”
In other words, Moody’s is affirming the long-term view of AT&T, suggesting that the benefits the company could realize might take some time. And while it continues to spend to build its assets to sustain revenue and profit growth, now’s the time to own T stock, which also pays a 4.87% annual yield, thanks to the company increasing its dividend in each of the last 30 years.
Bottom Line for T Stock
AT&T stock should be owned by investors who are looking for a safe dividend payer with sustainable cash flow from operations. T stock won’t excite in the near-term with breathtaking growth, but with an attractive forward price-to-earnings ratio of 13, compared with 18 for the S&P 500 index, the stock won’t sway from erratic market moves, either.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.