Thanks to its Time Warner deal, the telecom giant received a 9.5% stake in Hulu, which it sold earlier this week for $1.43 billion. That values the streaming firm at around $15 billion.
The divestment has several positive consequences for T stock. For years, critics have complained that the debt of the telecom firm is excessive. The sale was a small, but important, step towards streamlining the massive company and lowering its debt.
Following the Time Warner buyout, AT&T owns a very enviable content portfolio. This includes among many other brands, HBO. During last year’s Emmys, HBO was the only network whose performance was comparable to that of Netflix (NASDAQ:NFLX).
Therefore, it only makes sense that AT&T would dump Hulu and focus on its own streaming endeavors. That strategy will be meaningfully positive over the longer term for the T stock price.
However, is that enough to get me excited about AT&T stock? I think the move demonstrates management’s seriousness about resolving the company’s pressing financial issues. Still, the sale of the Hulu stake alone won’t make or break anyone’s approach toward AT&T stock.
Two months ago, I mentioned to readers that I was very interested in the company, enough to buy shares of AT&T stock. There were three main reasons for my decision: the company’s network moat, 5G and content streaming, and the high dividend yield of T stock. The T stock price has moved higher since then.
But I’m bullish on AT&T stock for a much more fundamental reason.
AT&T Stock Is Part of the U.S. Government
Take a look around the internet and you’ll find a common criticism of AT&T stock. It’s the d-word I mentioned before, and I’m not talking about dividends. Rather, I’m referring to the excessive debt load that threatens to undermine everything that the company’s management has planned.
If AT&T was a “normal” company, I would certainly be worried. After all, carrying nearly $170 billion of debt isn’t anything to make light of.
Moreover, a number of analysts have pointed out that better investments than AT&T stock exist. There’s a telecom firm that has better growth metrics, higher earnings potential, and a stable balance sheet. Those are true statements, but very few companies have the practical, structural stability of AT&T.
Specifically, AT&T is essentially a branch of the U.S. government. Want proof? Look at the multi-billion dollar federal contract that the company won to develop a nationwide broadband network for emergency responders. That’s a highly sensitive responsibility that no other telecom firm has come close to matching.
But this bullish thesis on T stock goes beyond national-security concerns. In order for us as a country to stay competitive in this century, we must invest vigorously in artificial intelligence and other automated technologies. To actualize this technological potential, the U.S. requires a viable telecom network.
The digitalization of everything, or the Internet of Things, obviously requires data transfers across wireless networks. So however one may feel about AT&T, its infrastructure and vast networks are pivotal to our digital and automated success.
Thus, I don’t think the traditional metrics used to assess publicly-traded companies work with AT&T stock. That’s because the government won’t let it fail because AT&T is almost part of the government.
Keep Expectations for T Stock in Check
Generally speaking, I believe that AT&T stock is a safe investment. However, that doesn’t mean investors can’t lose money on T stock. Therefore, I don’t recommend that people buy T stock with reckless abandon.
What I’m trying to convey is that AT&T stock isn’t your average, everyday investment, since it has $170 billion of debt. But our country is indebted to the tune of $22 trillion. Both numbers are significant, but they don’t automatically spell doom.
AT&T’s balance sheet looks awfully risky. However, AT&T is one of those companies that are too big and important to fail. So as long as you keep your expectations in check, T stock should do very well for you.
As of this writing, Josh Enomoto is long AT&T stock.