InvestorPlace contributor Luke Lango recently discussed five streaming stocks to buy as TV streaming takes America by storm. One of the companies on Luke’s list is AT&T (NYSE:T). With several streaming offerings on the go, he believes AT&T stock is the best of the bunch from a value perspective.
But is it the best?
Here are my two cents on the subject.
The Argument for AT&T Stock
In terms of the sheer number of offerings, AT&T’s way ahead of the competition. By the time it launches HBO Max in the spring, AT&T will have a total of seven streaming services through both the AT&T and HBO brands.
“AT&T’s streaming TV push over the next few years could be tremendously successfully,” Lango stated. “Tremendous success on the streaming TV front isn’t priced into dirt-cheap AT&T stock today. As such, the potential upside in AT&T stock from the streaming TV gold rush is quite compelling.”
Hey, you can’t argue with his logic. AT&T bought Time Warner specifically for all its great content, including HBO.
And yet, T stock trades at just 1.4 times sales, well below Disney (NYSE:DIS) at a P/S of 3.2, Apple (NASDAQ:AAPL) at 3.7, Netflix (NASDAQ:NFLX) at 7.5, and Roku (NASDAQ:ROKU) at 16.8.
If value is your only consideration, I don’t think there’s any question AT&T stock is at the front of the pack.
AT&T Stock and the Competition
Of the five streaming stocks, only Roku doesn’t generate an operating profit at the moment, and while I’m a big fan of Roku’s business model, for this article, I won’t include ROKU stock in my determination of whether AT&T is the best streaming stock to buy.
That being said, if the risk is no object, let me stop you right now.
Roku, in my opinion, is the best of the streaming stocks for the simple reason that it’s streaming agnostic. It wins no matter which of the content aggregators becomes the favorite of consumers five years down the road. However, it’s only appropriate for investors willing to assume above-average risk resulting from its money-losing operations.
So, right now, excluding Roku, Netflix is the favorite.
AT&T Is Less Stellar
It’s impossible to know if one of the other three (Disney, Apple, and AT&T) will take the lead, or perhaps a new entrant arrives on the scene in a couple of years that takes video streaming to another level. We don’t know.
To be considered the best streaming stock for this article, not only should a prospective company have a competitive streaming service, but it should also have strong cash flow generation and a healthy balance sheet.
Why?
Because if you exclude a stock like Roku, which has an excellent risk-to-reward ratio, it makes no sense to invest in something that’s got weak fundamentals and zero chance of winning the streaming wars.
Of the three stocks, early indications suggest that the Disney bundle at $12.99 — ESPN+, Disney+ and an ad-supported version of Hulu — is going to be fierce competition for Apple, AT&T, and even Netflix.
I’m not saying it’s going to be better than HBO Max or Apple TV+, but from a pricing perspective, it’s hard to see how Disney doesn’t pull in a boatload of subscribers.
Financials and Streaming
As for financial strength, Disney finished the third quarter with $59.3 billion in debt and $7.4 billion in cash and cash equivalents for net debt of $51.9 billion or 21% of its market cap. By comparison, Apple finished its latest quarter with net cash of $156.3 billion or 17% of its market cap while AT&T had $149.4 billion in net debt at the end of June, which is 59% of its market cap.
In the trailing 12 months, Disney, Apple, and AT&T had free cash flow of $3.35 billion, $58.3 billion, and $29.4 billion, respectively. As Disney fully integrates 21st Century Fox’s assets, the free cash flow generation will increase substantially. To a lesser extent, the same could be said about AT&T.
Even though Apple is likely viewed as delivering the least competitive streaming product, the fact that it generates so much free cash flow and holds so much cash compared to the other two, it’s hard not to like a side bet on Apple TV+.
The Bottom Line on AT&T Stock
If financials are the only consideration amongst streaming stocks, I don’t think there’s any doubt that Apple provides the least amount of risk between itself, Disney, and AT&T.
If the best offering is the only consideration, Disney appears to have the streaming package that will bring in the most subscribers.
As for AT&T, the fact that it’s got a smorgasbord of streaming offerings that are bound to confuse consumers, combined with the fact it has a hellish amount of debt, suggests that its stock isn’t the best from a streaming or financial perspective.
Despite its value, I don’t see how it’s the best of the streaming stocks.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
