When AT&T (NYSE:T) reported third-quarter earnings on Oct. 22, shares in the company popped. After beating expectations for revenue and adding a surprising number of new wireless customers, AT&T stock gained almost 6%. That was a rare bright moment for those who have seen an investment in AT&T slide 30% so far in 2020. It didn’t last long. Within a week, AT&T shares slumped to a $26.50 close. That was a new record low for the year — and the stock’s lowest close in a decade.
Those Q3 positives combined with its current low price might make AT&T stock seem tempting. Especially when you throw AT&T’s regular dividend into the mix. By the way, it was announced that the dividend for the past quarter will be 52 cents per share.
However, tempting as it might be, I would still stay far away from an investment in this company. AT&T stock earns an “F” rating in Portfolio Grader. It’s lost the position of the second-largest wireless carrier in the U.S., its DirecTV business continues to lose customers, its media business has been hit hard by the pandemic, and it’s saddled with massive debt.
Q3 Improves on Q2, But Concerns Remain
AT&T has had a miserable 2020 so far, and the pandemic has not helped. In Q2, the pandemic’s effects were on full display. Delayed movie releases and advertising shortfalls hurt, and it lost 151,000 postpaid mobile phone subscribers. Quarterly revenue fell 8.9% to $41 billion.
In the third quarter, there were some positives, but AT&T was clearly still struggling. Instead of another loss in postpaid mobile phone subscribers, the company added 645,000 customers. That massive rise was helped by a promotion offering free HBO Max on some phone plans, but it was a welcome reversal of the Q2 trend. Revenue of $42.3 billion was down 5% year-over-year, but beat analyst expectations. Earnings of 76 cents per share were down significantly from the 94 cents per share reported a year ago.
DirecTV — a business AT&T paid $67.1 billion for in 2015 — continues to bleed subscribers. The company reported in Q3 that it lost 590,000 “Premium TV” subscribers — largely made up of DirecTV customers. This continues a worrying trend. DirecTV lost 2.9 million customers in 2019 and 1.2 million in 2018. At this point, AT&T’s best play may be to spin off or sell DirecTV while it still has some value.
One of the biggest concerns about AT&T is its massive debt. In a four-year spree that included the purchases of Time Warner Media and DirecTV, AT&T had accumulated debt totaling around $163.1 billion by the end of last year.
In 2019, paying off that debt became a major theme for the company, as it sought to reassure investors. Last November, speaking to investors, AT&T’s CEO Randall Stephenson said:
“If you hear nothing else this afternoon, I want you to hear me on this. Our discretionary cash flow is going to go to one place. It’s going to be paying down debt.”
To be fair, interest rates are at record lows, making AT&T’s debt more affordable. The company refinanced some of that debt this summer, taking advantage of the low rates — and knocked out another $2.9 billion of its net debt in the third quarter.
The concern is that if interest rates should rise, that debt becomes far more costly to service. And if the company is paying more to service its debt, its dividend could be in jeopardy.
Bottom Line on AT&T Stock
AT&T stock is within pennies of being at its cheapest price in the past decade. And there’s no disputing the pandemic — a factor that (with any luck) will be temporary — has hurt its business. However, despite the potential for a post-pandemic recovery of sorts and a third quarter that had several positives, an investment in T stock at this point remains risky.
You would be betting on a lot of things going right for the company in order to see any prospect of your investment paying off in a meaningful way. I’m far from convinced that AT&T can turn things around to that degree.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.