U.S. Markets close in 6 hrs 2 mins

AT&T to Divest Assets in Puerto Rico & U.S. Virgin Islands

Zacks Equity Research

In order to trim its huge debt profile, AT&T Inc. T recently communicated plans to sell its wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands to Liberty Latin America.

Per the agreement, the U.S. wireless carrier will receive $1.95 billion in cash at close, subject to customary closing conditions. The transaction is subject to review by the FCC and the Department of Justice. The companies expect the deal to be completed within six to nine months.

The transaction comprises network assets, including spectrum, real estate and leases. It also involves customers, including 1.1 million wireless subscribers. The move is an outcome of the company’s ongoing strategic review of its balance sheet and assets to identify opportunities for monetization. Upon closure, about 1,300 AT&T employees will move to Liberty Latin America.

AT&T will retain FirstNet responsibilities as well as DIRECTV and certain global business customer relationships. Among other services, post deal closure Liberty Latin America will support AT&T’s FirstNet build in Puerto Rico and the U.S. Virgin Islands.

AT&T intends to utilize free cash flow for dividends and continue with monetization initiatives to meet its de-leveraging goal. The company has already surpassed its monetization goal of net $6 billion to $8 billion in 2019, with a total of $10 billion raised year to date from both asset monetization and working capital initiatives. With this deal, the total of announced monetization efforts this year is more than $11 billion.

In September 2019, chairman and CEO, Randall Stephenson, reiterated that AT&T remains confident of its ability to reduce its net debt-to-adjusted EBITDA ratio to the 2.5 range by the end of 2019. In fact, the company paid down $9 billion in net debt in the first half of 2019 and has reduced net debt by $18 billion since it closed the Time Warner acquisition. Remarkably, its progress against this objective gave the company confidence to increase its full-year free cash flow target to $28 billion.

AT&T also stated that shareholders should expect that share buybacks will be added to the mix of capital allocation approach in the fourth quarter of 2019. As of Jun 30, 2019, AT&T had $157,937 million of long-term debt. It expects wireless service revenue growth to continue in the second half of 2019.

Driven by strong execution of operational strategies, the stock has added 29.8% compared with the industry’s growth of 14.9% year to date.

AT&T currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are PCTEL, Inc. PCTI, Nokia Corporation NOK and T-Mobile US, Inc. TMUS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PCTEL surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 146.4%.

Nokia surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 89.3%.

T-Mobile surpassed earnings estimates in each of the trailing four quarters, the average surprise being 17.9%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Nokia Corporation (NOK) : Free Stock Analysis Report
PC-Tel, Inc. (PCTI) : Free Stock Analysis Report
AT&T Inc. (T) : Free Stock Analysis Report
T-Mobile US, Inc. (TMUS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research