When AT&T (NYSE: T) closed its acquisition of Time Warner, T stock had been trading in a somewhat narrow range of between $29 and $33 for most of 2019.
Buyers of T stock, especially those seeking dividend income, need not worry about a lack of gains. The dividend of T stock yields 6.34%. And even more compelling for income investors willing to hold the stock forever is its medium-term prospects. The company aims to grow its core business, launch 5G technology, and continue developing Time Warner, which is now known as WarnerMedia. Poised to generate strong cash flow, AT&T is in a good position to reward its loyal investors.
AT&T Is Taking Positive Steps
The telecom giant is aiming to pay down its debt throughout 2019. It has adopted two strategies that should accelerate the growth of its mobile business. First, it is cross-selling its services and offerings at its physical stores. Instead of wasting money advertising to the general public, the company is ensuring that its staff is well-versed in all of AT&T’s products, including the company’s bundled TV entertainment packages. AT&T’s wireless customers visit its stores three times a year, on average. They are spending more and more time at the stores and leave happier because they sign up for only what they need.
The introduction of 5G in multiple cities this year is the second growth strategy that AT&T is employing. The faster wireless service will increase its average sales price, although the company does not know how much its ASP will rise yet. Still, both FirstNet, the new communications network for public responders, and 5G will increase AT&T’s profit margin. The build-out of FirstNet is 50% complete and will reach 60% by the end of the third quarter.
The company’ s enterprise business, which already brings in $2.5 billion in cash flow for AT&T, will benefit from the 5G rollout and become an even bigger contributor to the company’s growth. For investors, having the patience to hold T stock through its ups and downs is a must. The reward will not come overnight because AT&T needs time to build its network, add the towers, and bring its spectrum online.
5G Is a Positive Catalyst for AT&T Stock
5G will definitely disrupt the wireless market because of its speed and its new capabilities. So far, AT&T has launched 5G service in 19 cities. By the end of this year, it expects to have launched the technology in 29 cities.
Later this year, AT&T plans to unveil three handsets that can utilize the upgraded network. It will be up to app developers to add features that can take advantage of 5G. As more customers sign up for 5G, AT&T may increase the density of the network, using software. As that happens, AT&T expects its average cost per subscriber and its cost per megabyte to drop.
Valuation and the Bottom Line on T Stock
Just six analysts have a price target on AT&T stock, and they have an average target on T stock of $35.83. Their price targets are conservative.
If AT&T’s 2019 EPS comes in at 90 cents, T stock would trade at a forward price-earnings ratio of less than ten. By comparison, Verizon Communications’ (NYSE: VZ) forward P/E is 12. The market is clearly ignoring the fact that the profits of AT&T’s WarnerMedia unit will increase more quickly as it releases movies and popular HBO shows.
AT&T stock price may dip back to the sub-$31 range and create another buying opportunity for investors. Even if that does not happen, T stock is still worth buying at these levels.
As of this writing, the author did not hold a position in any of the aforementioned securities.
