Layoffs Will Hurt AT&T’s Image More Than They Will AT&T Stock

Traders will quickly forget about the job cuts and focus on the real factors that can drive T stock

News that AT&T (NYSE:T) would cut 1,880 telecom jobs sent T stock higher but it also brought some degree of negative publicity to the company. The layoffs might also call into question the state of AT&T as the company redefines itself. Still, despite these concerns, T stock investors will more than likely keep their focus on the future of AT&T rather than its headcount.

Layoffs Will Hurt AT&T's Image More Than They Will AT&T Stock
Source: Shutterstock

AT&T stock investors have suffered for years as the company faced tremendous financial pressures. Competition squeezed revenues in wireless services as well as cable and satellite TV. At the same time, the company had to spend tens of billions of dollars to build a 5G network. On top of that, it has to pay down a massive debt load that rose as high as $168.5 billion in the third quarter of last year.

Further, T stock has maintained a 34-year streak of annual dividend increases. Ending the payout hikes would likely devastate AT&T stock. Hence, despite a 6.3% dividend yield, the company must also continue to increase this payout on top of its other financial obligations.

Amid these challenges, employees likely feel a sense of betrayal. Back in 2017, the company promised 7,000 new jobs if tax reform became law. Donald Trump signed his tax plan into law in 2017. However, the Communications Workers of America (CWA) says the tax savings likely went into stock buybacks and other things that do not benefit workers. Although AT&T continues to higher, the headcount has shrunk over the last few years.

Traders Focus on ATT Expenses

Unfortunately for the CWA rank-and-file, Wall Street traders continue to focus on expenses, as was evident as the AT&T stock price rose slightly on Tuesday following the news. Given its debt and dividend obligations, traders probably see any cut in expenditures as a positive. Many believe this has long affected the T stock. The forward price-to-earnings multiple now stands at less than 9x. Many blame the company’s expenses for this low multiple.

Focus Will Return to 5G, WarnerMedia

Despite the layoff news, over the long-term, T stock will trade based on the performance of 5G and how its content performs. Of the two, the outlook for 5G appears brighter. Once T-Mobile (NASDAQ:TMUS) acquires Sprint (NYSE:S), Verizon (NYSE:VZ), T-Mobile, and AT&T will be the only companies providing the wireless service poised to connect the future. With so few players in the space, intense price wars will likely not occur since all three carriers face huge expenses from building these networks.

Admittedly, AT&T’s foray into content brings greater risks. The company combined its HBO, Warner Brothers, and Turner content into WarnerMedia. With that, AT&T will compete directly with the likes of Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX). At between $16 and $17 per month, AT&T WarnerMedia streaming service should compare well from a cost perspective. However, that will probably mean less revenue than the cable and satellite services once brought. Moreover, failure would likely attract investors to Verizon stock as Verizon has staked most of its future on 5G.

Whether AT&T succeeds or fails with WarnerMedia could also determine how often the company faces issues with layoffs. However, it will probably have less-dramatic effects on T stock.

Bottom Line on T stock

Although the announced layoffs could bring negative sentiment and publicity to AT&T, they will likely have little long-lasting effect on T stock. Perhaps traders saw this move as path to cutting company expenses. However, AT&T remains heavily in debt and faces mounting costs.

Still, as more customers sign up for its 5G service and the newly formed WarnerMedia, AT&T should find itself in a better position to grow revenues and profits. Over the long-term, these factors will be what probably drives T stock. Perhaps they will also motivate AT&T to add jobs again.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


Article printed from InvestorPlace Media, https://investorplace.com/2019/06/layoffs-hurt-atts-image-t-stock/.

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