AT&T Stock Will Reward the Patient After the Upcoming Spin-Offs

AT&T Inc. (NYSE:T) stock used to be a relatively safe bet for income investors.

AT&T logo (T stock) representing communications stocks
Source: Jonathan Weiss / Shutterstock.com

It offered predictable cash flows with healthy dividend payouts and a reasonable capital appreciation.

However, T stock has evolved quite a bit, as it has drastically changed its financial structure and overall strategy. Regardless of these changes, it still remains a solid investment that will continue to reward the long-term investor.

T stock has moved sluggishly in the past 12-months, with the stock declining by 7%. Concerns surrounding its spinoff, dividend reduction and lackluster earnings are some of the reasons for its weakness.

At this time, it is trading at a 13% discount to its average price targets. Moreover, it trades at just 1.1 times forward sales. Therefore, the stock is trading at a hefty bargain, and considering its long-term potential, it fares as an attractive investment.

Strong Earnings Results

AT&T had an impressive second quarter where it beat analyst wireless subscriber estimates by a considerable margin. The results are a testament to the company’s progress in expanding its 5G goals.

Revenues during the quarter grew to $44 billion and were up 7% on a year-over-year basis. Moreover, its sales numbers beat analyst estimates by roughly $1.3 billion.

Communications revenue was 6% due to higher mobility and consumer wireline sales. Moreover, WarnerMedia sales rose by an incredible 31%. Adjusted earnings of 89 cents per share topped consensus estimates by nine cents.

Furthermore, the company witnessed a massive 1.16 million increase in its wireless customers in the quarter, topping estimates by almost four times. Wireless subscriber numbers have risen in four consecutive quarters for AT&T.

Moreover, the tailwinds being experienced by the company are quite robust and can help it post even better numbers during the second half of the year.

Additionally, with the new iPhone releases expected by the end of this year, AT&T is likely to get a major bump in revenues. Consequently, the company has raised its guidance for earnings and revenue growth for this year.

The AT&T Spinoff

AT&T is breaking up into three companies to reduce its massive debt load and unlock value for its shareholders. AT&T will solely focus on 5G communications and broadband, while DIRECTV and Warner Bros. Discovery will focus on entertainment.

Warner Bros. Discovery is a spinoff of WarnerMedia with Discovery (NYSE:DIS). The merger between the two entities will close in mid-2022, and the combined entity with trade under the ticker symbol WBD.

The reorganization is likely to spook a lot of the company’s existing shareholders, though. When they receive their unfamiliar WBD shares, they may look to sell.

The deal is likely to pay off in the long term for the company shareholders. WBD and the other two companies might perform better by focusing on their objectives and strategies.

Moreover, AT&T will get $43 billion from the deal to reduce its debt load, enabling it to invest more cash in its telecom operations.

Final Word on T Stock

T stock is not what it used to be, but its working towards unlocking significant growth for its shareholder in the future.

It aims to curb its debt and operate a leaner business with separate entities focusing on their goals. Its earnings results indicate that it’s on the right track and is poised for even better performances in the upcoming quarters.

Therefore, those who stick around with T stock for the long haul will immensely benefit from the much-needed changes with its operations.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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