AT&T Inc (NYSE:T) experienced a daily gain of 2.71%, contrasting with a 3-month loss of -6.69%. The company also reported a Loss Per Share of 1.22. The question we aim to answer is, is AT&T fairly valued? In this article, we'll delve into an extensive valuation analysis of AT&T, shedding light on its financial strength, profitability, and growth prospects. We encourage you to read on for a comprehensive understanding of AT&T's market value.
Introduction to AT&T (NYSE:T)
AT&T is a leading telecommunications company with a diverse business portfolio. The wireless business contributes about two-thirds of AT&T's revenue after the spinoff of Warner Media. The firm is the third-largest U.S. wireless carrier, connecting 70 million postpaid and 18 million prepaid phone customers. Fixed-line enterprise services, which account for about 18% of revenue, include internet access, private networking, security, voice, and wholesale network capacity. The company also has a significant presence in Mexico, serving 22 million customers. However, this business only accounts for 3% of revenue. AT&T still holds a 70% equity stake in satellite television provider DirecTV, but it does not consolidate this business in its financial statements.
At the current price of $14.6 per share and a market cap of $104.30 billion, AT&T's stock is considered to be fairly valued according to our GF Value estimate. But what does this mean for potential investors? Let's delve deeper into the company's valuation.
Understanding the GF Value of AT&T (NYSE:T)
The GF Value is a proprietary valuation model that estimates a stock's intrinsic value. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should be traded at.
If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher. With AT&T's current price of $14.6 per share and the market cap of $104.30 billion, the stock is believed to be fairly valued. Therefore, the long-term return of AT&T's stock is likely to be close to the rate of its business growth.
Financial Strength of AT&T (NYSE:T)
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. AT&T has a cash-to-debt ratio of 0.06, which ranks worse than 83.42% of 392 companies in the Telecommunication Services industry. The overall financial strength of AT&T is 4 out of 10, which indicates that the financial strength of AT&T is poor.
Profitability and Growth of AT&T (NYSE:T)
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. AT&T has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $121.40 billion and a Loss Per Share of $1.22. Its operating margin is 19.92%, which ranks better than 77.78% of 387 companies in the Telecommunication Services industry. Overall, GuruFocus ranks AT&T's profitability at 7 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. However, AT&T's 3-year average annual revenue growth is -13.6%, which ranks worse than 88.16% of 380 companies in the Telecommunication Services industry. The 3-year average EBITDA growth rate is -28.2%, which ranks worse than 92.17% of 332 companies in the Telecommunication Services industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, AT&T's ROIC is 11.54, and its WACC is 5.
In conclusion, AT&T's stock is believed to be fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 92.17% of 332 companies in the Telecommunication Services industry. To learn more about AT&T stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.