AT&T’s (NYSE:T) recently released second-quarter earnings which show that the conglomerate is finally moving in the right direction.
The world’s largest telecommunications company and the biggest provider of mobile telephone services in the U.S. appears to finally be getting its financial house in order after years of moving in fits and starts.
With T stock down 1.6% on the year at $28.20 as of yesterday’s close, just slightly above its 52-week low, it looks like the shares have reached an attractive entry point for investors who want to build a position and enjoy long-term gains. AT&T’s share price has slumped 35% over the past five years, leaving many on Wall Street with the view that there’s nowhere to go but up from here for the Dallas, Texas-based telecom giant.
A Big Earnings Beat
AT&T is riding high after the company posted second quarter results that handily beat the average expectations of analysts. The conglomerate also raised its guidance for the rest of this year. The company’s Q2 revenue rose 7.6% year-over-year to $44 billion, beating analysts’ mean estimate of $42.67 billion. Its earnings per share came in at 21 cents, 24% higher than the 17 cents recorded during the same period a year earlier.
In terms of forward guidance, AT&T says it now expects 2021 revenue growth in the 2% to 3% range and EPS, excluding some items, to rise in the low-to mid-single-digit percentage range. That’s an improvement from previous expectations of revenue growth in the 1% range and stable adjusted EPS for the full year.
AT&T attributed the impressive results to a massive jump in its mobile phone subscribers. Driven by customers converting to 5G-enabled smartphones, the surge enabled AT&T to add 789,000 phone subscribers in Q2. That was an astounding 184% greater than the 278,000 new phone subscribers that analysts, on average, had anticipated.
And it was a big turnaround from Q2 of 2020 when the company lost 151,000 phone subscribers at the height of the Covid-19 pandemic.
AT&T said the big jump in its phone subscriptions last quarter justifies its push into fifth generation (5G) wireless technology. The company has invested more than $20 billion to upgrade and expand its national network to 5G technology as it strives to keep up with skyrocketing demand for the faster internet service, generated by people who continue to work and learn from home.
The newest 5G networks are capable of operating up to 100 times faster than the previous 4G networks and are quickly becoming the global standard for expected cellular speeds.
Streaming Service
Another strong driver of growth for AT&T is its HBO Max streaming service. The company’s WarnerMedia division reported that it had added 2.8 million subscribers to its premium HBO channel and HBO Max streaming platform in Q2. New films such as “Mortal Kombat,” based on a popular video game and “In the Heights” helped to attract new subscribers, the company said. AT&T is expanding HBO Max in Latin America right now and plans to offer the service in Europe beginning next year.
In conjunction with its Q2 results, AT&T raised its forecast for global HBO Max subscribers to between 70 million and 73 million by the end of this year. It had previously forecast 67 million to 70 million total subscribers by December.
The company also announced plans to produce a minimum of ten new films that will be available exclusively on HBO Max. AT&T said films made exclusively for HBO Max will only appear in theaters for limited runs if the company plans to make them eligible for Academy Awards.
Additionally, WarnerMedia, which is owned by AT&T, is expected to merge with Discovery (NASDAQ:DISCA) in 2022 once the $43 billion deal is approved by regulators. The new company, which AT&T says it plans to spin off, will be called “Warner Bros. Discovery.” It is expected to be valued at $150 billion, making it large enough to compete against rivals Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS).
Warner Bros. Discovery will have more than 200,000 hours of content and own popular fare such as “Harry Potter” and “Game of Thrones.” The combined company will also own Discovery’s extensive reality television lineup, which includes shows such as “Shark Week” and “Deadliest Catch.”
Buy T Stock on AT&T’s Improved Outlook
AT&T appears to have turned a corner, and its outlook has greatly improved. The company’s Q2 results markedly improved, driven by its 5G wireless expansion, mobile phone subscriptions, and continued success in the streaming space.
Analysts have been impressed by AT&T’s turnaround and have been raising their price targets on the company’s shares. The median target on T stock is now $31.50, over 10% above its current levels. Among the analysts, the highest price target is $37. Given everything that is going right for AT&T and the fact that the company’s share price remains low and affordable, now would be a good time for investors to buy T stock.
On the date of publication, Joel Baglole held a long position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
