AT&T (NYSE:T) stock has struggled over the past several years, as the telecommunications giant has been weighed down by persistent cord-cutting and wireless competition headwinds. Together, those two headwinds have led to T stock trading essentially flat over the past five years, a stretch during which the S&P 500 rallied 50% and the Nasdaq Telecommunications index rose over 60%.
But there’s reason to believe this era of underperformance by AT&T stock may be coming to a close. AT&T stock price will soon be driven higher by the launch of 5G and the increased popularity of streaming.
AT&T’s strong cord-cutting headwind, which has plagued T stock for five years, has the potential to turn into a powerful streaming tailwind over the next five years. Meanwhile, the tough wireless competition headwind which has similarly weighed on the stock for the past few years, has the potential to turn into a big 5G tailwind over the next few years.
Both of those favorable pivots could start playing out in 2019. At the same time, AT&T stock trades at multi-year lows, with a multi-year low valuation and a multi-year-high yield.
Overall, then, now looks like a good time to bet on the long overdue AT&T turnaround. There are favorable catalysts on the horizon. Those catalysts should combine with a depressed valuation later this year, sparking a nice rally by T stock.
5G and Streaming Tailwinds Are Coming Soon
The outlook of T stock should substantially improve in 2019 and 2020, and this improvement should provide a nice lift for AT&T stock price.
AT&T’s biggest problem over the past several years has been cord cutting. Consumers are increasingly pivoting from traditional to internet TV consumption. As they do, they are cutting the cord, resulting in lower cable and programming revenues for AT&T. But, thanks to its acquisition of Time Warner, AT&T owns a suite of valuable content that consumers love. Among the components of this suite are HBO, Cinemax, and the entire slate of Warner Bros. movies and TV shows.
AT&T is going to package all that content together into one streaming service, set to launch later this year. With that move, AT&T is taking content consumers love to watch, and putting it where they love to watch it. As a result, T stock will benefit from strong demand for this new streaming service, and that powerful streaming demand will help offset persistent cord-cutting weakness.
AT&T’s second-biggest problem over the past several years has been intense wireless competition. 4G coverage has become largely commoditized. Every sizable wireless coverage provider offers passable 4G coverage. Thus, competition in the wireless coverage world has boiled down to price over the past several years, and that has weighed on AT&T’s margins.
But the 5G revolution is coming, and 2019 will be the year in which 5G goes mainstream. As that occurs, wireless coverage will become increasingly less commoditized. Some service providers will have robust 5G coverage. Other’s won’t. The ones that do will be exempt from pricing wars since they will have differentiated themselves based on quality. AT&T should be one of those higher quality service providers, since it is America’s second-largest wireless service provider.
Overall, then, AT&T stock should benefit from two huge shifts in 2019 which will take the biggest headwinds of T stock and turn them into tailwinds.
AT&T Stock is Too Cheap
These outlook shifts, along with the exceptionally depressed valuation of T stock, will spark an enormous rally of AT&T stock price.
Across the board, AT&T stock is dirt cheap. T stock has a dividend yield (6.7%) which is almost as high as its forward earnings multiple (9). That is an exceptionally attractive deep-value combination which basically screams that AT&T stock price doesn’t reflect any positive elements..
But, positive things are coming. The launch of a new streaming service in 2019 will help offset cord-cutting weakness, and the mainstream rollout of 5G coverage will provide a boost to wireless profitability. As those positive catalysts occur, the result should be a sharp move higher by AT&T stock price.
The Bottom Line on T Stock
AT&T stock has been a dud for a long time. But this era may be coming to a close, as the company is finally getting its act together on the streaming front, at the same time that 5G is being introduced to the world. Those two catalysts could change the game, and kick-start a new and much more favorable era for T stock going forward.
As of this writing, Luke Lango was long T.