AT&T Stock Is Definitely a Buy for Those with Patience and Fortitude

The past three years have been disappointing to say the least for AT&T Inc. (NYSE:T). The telecom firm has been struggling to keep up in a fast-moving industry and AT&T stock has been on a downward trajectory as the firm attempted to realign its priorities.

AT&T Stock: Ma Bell Belongs In An Income Investor's Portfolio

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However after a long slog, AT&T stock looks to be on the brink of a major recovery making now a great opportunity to pick the telecom firm up before AT&T’s stock price starts to reflect the firm’s forward progress.

Digesting the Difficult News

Perhaps the biggest reason many are wary of AT&T is the fact that the firm has been losing subscribers in droves of the past few quarters, and that trend is likely to continue. During the past two quarters alone, 1.3 million video customers have abandoned their AT&T contracts. If that’s not scary enough, CEO Randall Stephenson is forecasting more of the same for the remainder of the year.

That’s bad news any way you look at it- you certainly don’t want a cable company to be losing its customers. However, Stephenson says it’s a necessary evil and I’d tend to agree. Many of those customers came on board when AT&T was selling its services as a loss-leader. The ultra-cheap prices got people in the door, but the firm failed to ever turn a profit with their accounts. 

This is a case of short-term pain in order to realize long-term gains. AT&T is focused on profitability and part of that strategy involves raising prices and doing away with promotional deals. While the customer losses are certainly tough to swallow, margins should start to improve and eventually which will help the firm in the long term.

A CLoser Look at AT&T Stock

AT&T is carrying a $163.9 billion in long-term debt leaving it with a debt to equity ratio of 55.56. While that’s not ideal, the firm has made major strides toward paying that total down and management appears to be committed to lowering its debt obligations significantly in 2019. AT&T is aiming to get its debt down to $150 billion by the end of the year, and T looks on-track to do so with ease.

AT&T’s progress shifting its strategy and paying down debt are both reasons to overlook some of the bear case. But the real reason to buy is the firm’s future growth potential. Not only has the company been addressing its weaknesses, but it’s been setting itself up to become the growth engine it once was in 2020 and beyond.

Most notably is AT&T’s TimeWarner streaming service, now called WarnerMedia. As the service will include Time Warner’s massive TV and movie collection that will make the service a compelling rival to competitors like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN).

While the streaming space is already crowded, most agree that there will be space in the industry for WarnerMedia since most people subscribe to more than one streaming service. 

There’s also the addition of 5G driving AT&T’s growth story. The firm is due to roll out 5G connections in cities across the country this year and as the higher-speed connection becomes the norm over the next year, it should help AT&T gain back some of the pricing power it lost over the past few years. That pricing power should further boost margins and in turn help the firm complete its turnaround. 

The Bottom Line on AT&T

AT&T stock is far from being out of the woods, and investors who jump in now should be ready for more turbulence during the back half of 2019. However, the firm looks to be solidly on the path to orchestrating an impressive turnaround. As that becomes more and more apparent and the firm’s weaknesses dissipate, T stock will likely get more expensive.

That makes now a great time to take a position if you’ve got time to wait through some uncertainty in the short-term. AT&T  also offers investors a 6.29% dividend yield, which should make sitting through a few more bumpy quarters much more comfortable. 

As of this writing Laura Hoy was long T, AMZN, and NFLX.

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