The telecommunication industry is rapidly evolving to meet the soaring demands of consumers for an efficient network. Also, amid the existing macroeconomic challenges, companies in this sector are seeking ways to improve efficiency and shifting toward adopting improved technologies.

According to a research report published by Spherical Insights & Consulting, the worldwide telecom network infrastructure market size is expected to reach $168.5 billion by 2032, at a CAGR of 5.8% between 2022 and 2029. Given this backdrop, let us bring to light whether telecom stock AT&T Inc. (T) could be an ideal portfolio addition or not.

T provides telecommunications and technology services worldwide and operates through two segments, Communications; and Latin America.

The company expects to achieve a net debt-to-adjusted EBITDA ratio in the 2.5x range by early 2025. A declining ratio implies the company’s ability to pay off its debt and/or grow earnings.

However, over the past year, the stock has declined 27.2% to close the last trading session at $15.21. Over the past six months, the stock declined 20%. It is trading lower than its 50-day moving average of $17.75 and 200-day moving average of $18.07, indicating a downtrend.

Here is what could influence T’s performance in the near term:

Mixed Financials

For the fiscal first quarter that ended March 31, 2023, T’s total operating revenues increased 1.4% year-over-year to $30.14 billion. Its total operating expenses declined marginally from the prior-year quarter to $24.14 billion. T’s adjusted EBITDA stood at $10.59 billion, up 3.9% year-over-year.

However, T’s net income and earnings per share attributable to common stock stood at $4.18 billion and $0.57, respectively, down 12.3% year-over-year. Its cash and cash equivalents and restricted cash for the same quarter stood at $2.94 billion, down 92.4% year-over-year.

Disappointing Historic Growth

T’s revenue declined at 12.2% and 5.3% CAGRs over the past three and five years, respectively. The company’s EBITDA and total current assets have also declined at 6.7% and 9.8% CAGRs, respectively, over the past three years.

Mixed Analyst Estimates

Analysts expect T’s EPS for the fiscal second quarter ending June 2023 to decline 5.4% year-over-year to $0.61 billion. For the fiscal year ending December 2023, the consensus EPS estimate of $2.43 indicates a decline of 5.5% year-over-year.

However, analysts expect the company’s revenue to come in at $30.01 billion for the current quarter (ending June 2023), up 1.2% year-over-year. For the fiscal year ending December 2023, the consensus revenue estimate of $122.07 billion indicates an increase of 1.1% year-over-year.

Attractive Valuation

In terms of its forward non-GAAP P/E, T is trading at 6.26x, 54.8% lower than the industry average of 13.86x. The stock’s forward Price/Sales and EV/EBIT multiple of 0.89 and 11.77 are 19.9% and 21.4% lower than the industry averages of 1.11 and 14.98, respectively.

Mixed Profitability

T’s trailing 12-month cash from operations of $34.86 billion is significantly higher than the industry average of $216.08 million. However, its trailing 12-month cash per share of $0.39 is 72.4% lower than the industry average of $1.43.

Furthermore, T’s trailing-12-month gross profit margin of 58.37% is 17.3% higher than the industry average of 49.76%. However, its trailing 12-month asset turnover ratio of 0.25x is 49.8% lower than the industry average of $0.49x.

POWR Ratings

T has an overall C rating, equating to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct 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 C grade for Sentiment, in sync with its mixed analyst estimates. It also has a C grade for Quality, consistent with its mixed profitability scenario.

T is ranked #6 out of 18 stocks in the Telecom – Domestic industry.

Click here to access T’s POWR ratings for Growth, Momentum, Stability, and Value.

Bottom Line

T’s increase in total operational revenues for the fiscal first quarter of 2023 was partially offset by its lower business wireline revenues, which declined 5.5% year-over-year to $5.33 billion.

Moreover, coupled with growing inflation, rising interest rates, and concerns over an impending recession that could undoubtedly affect the telecom industry, considering T’s stock’s downtrend and the company’s mixed financials, it could be wise to wait for a better entry point in this telecom stock.

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

T has an overall grade of C, equating to a Neutral rating. Check out these other stocks within the Telecom – Domestic industry: Ooma, Inc. (OOMA), with an A (Strong Buy) rating, and InterDigital Inc. (IDCC) and Spok Holdings, Inc. (SPOK), with a B (Buy) rating.

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T shares were trading at $15.36 per share on Monday afternoon, up $0.15 (+0.99%). Year-to-date, T has declined -14.16%, versus a 12.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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