The telecom giant will sell its 70% stake in DIRECTV, marking the end of a painful and costly era.
Concerns about the sustainability of the company's dividend are fading fast.
We previously shifted our stance on AT&T to neutral due to a balanced risk-reward. The sale of DirecTV, despite a significant loss, aids AT&T's deleveraging and refocuses on its core business. AT&T offers an attractive earnings yield of 10% and free cash flow yield of 12%, but faces bigger risks in 2025.
AT&T (NYSE:T) is exciting the entertainment business and selling its remaining 30% stake in DirectTV to Dallas based private equity group TPG.
The telecom has agreed to sell its 70% stake to private equity firm TPG Inc.
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AT&T shares rebounded impressively, generating 28.68% YTD returns, outperforming the S&P 500's 11.2% gains, prompting an upgrade to a "buy" rating. Strong Q2 results with 419,000 new wireless subscribers and a 0.7% churn rate, alongside a 9% increase in free cash flow, support this upgrade. Despite an 8% decline in mobility equipment revenue, AT&T's valuation remains attractive, trading at 9.14x 2026 earnings and 7.4x free cash flow.
While rate-cut optimism could be helping AT&T's stock toward its best month in nearly two years, there's also been growing validation of the company's fiber strategy.
AT&T's fundamentals have improved since refocusing on telecommunications. Lower interest rates make AT&T's 5.1% dividend yield more attractive.
AT&T's stock has appreciated due to a favorable macro environment and successful deleveraging, making it an attractive long-term investment. Growth catalysts include expanding fiber footprint, increasing subscribers, and solid mobility business performance, supporting continued momentum. AT&T's improved debt profile and high dividend yield make it appealing, especially with expected Federal Reserve rate cuts.
AT&T's Fiber Broadband growth and increased free cash flow make it a compelling option for passive income investors, with a low dividend payout ratio. The Telco's reaffirmed 2024 free cash flow forecast and low valuation based on profits bolster the investment thesis despite recent 52-week highs. AT&T's stock remains moderately valued at 9.5x leading profits, with an intrinsic value estimate of $23-$25, driven by robust FCF growth.
We were aggressive buyers of AT&T Inc. stock sub $15 but were asked plainly “if we were wrong to sell at $19?”. The concept of a house position for future gains is considered. Recent developments include potential DirecTV-Dish merger talks and new labor agreements, which could positively impact future operations and reduce debt.