AT&T Inc. (T) has been proactively pursuing strategic partnerships, which could pave the way for substantial growth in the long run. On July 6, T and Boldyn Networks, a prominent infrastructure provider, unveiled plans for extensive coverage expansion for the San Francisco Municipal Transportation Agency (SFMTA).

The collaboration aims to enhance wireless connectivity for millions of passengers in tunnels, stations, rail cars, and nearby regions. The alliance could result in a larger customer base, higher data usage, and increased brand visibility for T.

Moreover, on May 11, T and BlackRock (BLK) concluded their joint venture, creating Gigapower, LLC. The new company, managed by BLK’s Diversified Infrastructure business, aims to establish an advanced fiber network in select metro areas, offering commercial wholesale open access to internet service providers and businesses.

T’s ambitious growth plan, targeting over 30 million locations by 2025, should broaden its customer base and increase revenues. Ventures such as Gigapower could offer financial growth opportunities for T, enabling the company to deliver its state-of-the-art broadband technology to new markets, thereby increasing its profitability.

However, in the wake of a recent report, AT&T shares nosedived to their lowest level since 1993 as the company’s losses escalated. The unsettling report disclosed that some of the nation’s major network providers had left thousands of lead-covered cables across several locations in the United States.

On July 9, the Wall Street Journal reported that T, among other companies, discarded lead-coated cables from the old Bell System’s telephone network into the United States ground, water, and transmission poles. This disclosure instigated a torrent of downgrades from analysts, which subsequently ignited a harsh sell-off in telecom shares.

In this regard, JPMorgan Chase (JPM) analysts downgraded T from overweight to neutral and revised its price target to $17 from $22. Their decision seems to be fueled by concerns over the potential liability posed by the lead-coated cable issue, which they deem an unquantifiable and long-term overhang for the company’s stock.

Shares of T have plummeted 22.7% over the past six months to close its last trading session at $14.76.

The company is set to report its second-quarter earnings soon. Ahead of its earnings, here is what could shape T’s performance in the near term:

Mixed Financials

For the first quarter that ended March 31, 2023, T’s total operating revenues increased 1.4% year-over-year to $30.14 billion. Its operating income rose 8.4% from the year-ago value to $6 billion. Also, the company’s adjusted EBITDA grew 3.9% from the prior year’s period to $10.59 billion.

However, the company’s net income decreased 13.8% year-over-year to $4.45 billion, and its earnings per share attributable to common stock came in at $0.58, down 12.1% year-over-year. Also, as of March 31, 2023, T’s cash and cash equivalents amounted to $2.82 billion, compared to $3.70 billion as of December 31, 2022.

Solid Historical Growth

Over the past five years, T’s operation income (EBIT) grew at a 3% CAGR. In addition, the company’s normalized net income during the same period rose at a CAGR of 3.8%.

Mixed Analyst Estimates

Analysts expect T’s revenue to increase 1% year-over-year to $29.94 billion for the fiscal second quarter that ended June 2023. However, the company’s EPS for the same quarter is expected to decline 7.7% year-over-year to $0.6.

Furthermore, T’s revenue and EPS for the ongoing quarter ending September 2023 are expected to grow and decline 1.5% and 8.8% from the prior year’s period to $30.29 billion and $0.62, respectively.

Mixed Valuation

In terms of its forward non-GAAP P/E, T is trading at 6.07x, 61.2% lower than the industry average of 15.66x. Also, its forward EV/EBITDA of 6.57x is 21.6% lower than the industry average of 8.37x. However, the stock’s forward EV/Sales multiple of 2.30 is 25.5% higher than the 1.84 industry average.

Mixed Profitability

T’s trailing-12-month gross profit margin of 58.37% is 17.7% higher than the 49.59% industry average. The stock’s trailing-12-month EBITDA margin of 36.15% is 100% higher than the industry average of 18.08%. Although, the stock’s trailing-12-month asset turnover ratio of 0.25x is 49.8% lower than the industry average of 0.49x.

POWR Ratings

T’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. T has a B grade for Growth, in sync with its solid past growth record. However, the stock also has a D for Momentum, justified by the stock trading lower than its 50-day and 200-day moving averages of $15.72 and $17.81, respectively.

T also has a C grade for Value and Quality, consistent with its mixed valuation and profitability.

T is ranked #7 in the 18-stock Telecom – Domestic industry. Click here to access T’s additional ratings.

Bottom Line

Recent claims of T leaving thousands of cables covered in lead across various locations might negatively affect the company’s standing and investor confidence. However, the company may be strategically positioned for significant long-term growth as a result of its vigorous pursuit of partnerships and collaborations.

Taking into account T’s less-than-favorable financials, the somewhat pessimistic outlook from analysts, and bleak near-term growth prospects, it might be prudent to wait for a better entry point in the stock.

How Does AT&T Inc. (T) Stack Up Against Its Peers?

While T has an overall POWR Rating of C, equating to Neutral, one could also check out other stocks within the Telecom – Domestic industry that is solid buys: InterDigital Inc. (IDCC), Ooma, Inc. (OOMA), and Spok Holdings, Inc. (SPOK).

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T shares were trading at $15.01 per share on Monday afternoon, up $0.25 (+1.69%). Year-to-date, T has declined -14.62%, versus a 19.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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