Why This Q4 Report Will Be Crucial for AT&T

AT&T Inc. (NYSE: T | T Price Prediction) is set to release its fourth-quarter financial results before the opening bell on Wednesday. The consensus forecast is calling for $0.87 in earnings per share (EPS) and $46.96 billion in revenue. The same period of last year reportedly had $0.86 in EPS and $47.99 billion in revenue.

Merrill Lynch recently highlighted AT&T as one of its preliminary top picks for 2020. The firm issued a Buy rating with a $43 price objective. The valuation is deemed warranted as the company faces challenging operating trends within AT&T’s TV business, along with higher leverage and integration risk. That said, the negatives are offset by higher earnings expectations and faster growth after taking the impact of stock buybacks and cost savings into consideration.

Now investors have to be asking themselves if AT&T’s rise can continue into 2020. At least some on Wall Street feel it can outperform next year. The big issue to consider is that rival Verizon, which had held better in prior years, was only up 7% on a total return basis in 2019.

While there is much riding on the Sprint/T-Mobile merger for cellular communications, it still has a chance of being completed, and that’s good for both AT&T and for Verizon due to a three-way fight being better than a four-way one.

AT&T itself sees full-year 2019 free cash flow around $28 billion, and its EBITDA margin is expected to grow by 200 basis points by 2022. The company’s revenue growth is expected to come from wireless and WarnerMedia, and some from Mexico. Its margin growth is expected to come primarily from wireless, merger synergies, Mexico and a focus on operating cost containment. CFO John Stevenson indicated how it expects to improve its balance sheet as follows:

The company has begun retiring shares and is evaluating a 100-million-share accelerated share repurchase program for the first quarter of 2020. By the end of 2022, AT&T expects to retire 100% of the debt it incurred to acquire Time Warner, targeting a net debt-to-adjusted EBITDA ratio in the 2.0x to 2.25x range, and expects this to lead to an upgrade in its debt ratings.

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Excluding Tuesday’s move, AT&T stock had underperformed the broad markets with a gain of only 25% in the past 52 weeks. The stock was only up 4% in just the past quarter.

Here’s what analysts had to say ahead of the report:

• Deutsche Bank has a Buy rating and a $44 price target.
• Tigress Financial has a Buy rating.
• Moffett Nathanson has a Sell rating and a $30 target.
• HSBC rates it as Hold with a $42 price target.
• UBS has a Buy rating and a $42 target price.
• JPMorgan rates it as Overweight with a $42 target.
• Standpoint Research has a Hold rating.

Shares of AT&T traded up 1% to $38.69 on Tuesday, in a 52-week range of $28.92 to $39.70. The consensus price target is $39.31.

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