Should AT&T (T) Adorn Your Portfolio Post DIRECTV Buyout?
On Aug 31, 2015, we issued an updated research report on AT&T, Inc. T.
Acquisitions and strategic collaborations have played a major role in shaping AT&T’s growth story. Recently, the company scaled up to the highest position in the U.S. pay-TV market with the acquisition of DIRECTV. After a gap of over a year, AT&T finally received the green signal for the takeover from the Federal Communications Commission (FCC). The transaction is one of the biggest merger and acquisition deals in the pay-TV industry, which is currently witnessing significant consolidation.
The DIRECTV takeover will boost AT&T’s video customer base by an estimated 20.3 million from the current 5.7 million. It will also boost AT&T’s pay-TV customer count to 26 million. AT&T presently has over 26 million customers in the U.S. and in an excess of 19 million customers in Latin America, which includes Mexico and the Caribbean. The deal will not only drive AT&T’s earnings and revenues through enhanced video offerings but will also reduce programming costs, going forward.
With the completion of the deal, AT&T expects to derive a massive $2.5 billion worth of cost synergies on an annualized basis from the third year. At the time of the announcement of the deal, AT&T had estimated that its annualized cost synergies will be around $1.6 billion. Most of these synergies will result from a significant reduction in content costs. Content costs, as a percentage of video revenues, is currently much higher for AT&T than for DIRECTV. Moreover, a large customer base of the merged entity will lend AT&T a better position to bargain with media companies (content providers).
The Zacks Rank #2 (Buy) company reported mixed financial numbers in the second quarter of 2015. Earnings came in above the Zacks Consensus Estimate whereas revenues were in line with the same. The company’s better-than-expected earnings were driven by 2.1 million wireless subscriber additions. The company has missed the Zacks Consensus estimate in one of the last four quarters.
Key Picks in the Sector
Other stocks worth considering in this sector include Inteliquent, Inc. IQNT, T-Mobile US, Inc. TMUS and Sprint Corporation S. All these stocks hold the same Zacks Rank as AT&T.
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AT&T INC (T): Free Stock Analysis Report
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