AT&T shares fell sharply Thursday after the telecom giant cut its free cash flow forecast for the year, but one analyst said the latest report wasn’t all bad.
In fact, analyst Walt Pickick at LightShed Partners called his research note: “AT&T’s Q2 was really good. Here’s why.”
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The management team did not win points from Bekek for its handling of cash flow forecasts over the past few months. Beckik noted pressing issues with AT&T’s older free cash forecast in March, namely, “the liberal use of approximation, aversion to mentioning the cash tax estimate for supposed political reasons, and ultimately the use of working capital and DirecTV distributions in – the cash flow presentation.”
AT&T said Thursday that various trends contributed to the lower expectations, including slower payment times for customers and higher-than-expected cash outlays related to purchasing its own devices from suppliers.
“It is astounding that the stock is selling so sharply on working capital, but management is largely to blame,” Beckick wrote. “Free cash flow guidelines shouldn’t be that complicated and investors shouldn’t include the ephemeral benefits of working capital in their calculations.”
Elsewhere, however, he saw positives in the report. AT&T’s free cash flow metric is important to investors because the company pays big dividends, but Beckick doesn’t think the company will need to cut its dividend anymore.
“Its core business is doing well and the 5G capex cycle should come to an end,” he wrote. “In 2023, we believe AT&T could generate more than $12 billion in free cash flow. The full-year dividend-reducing benefit means that $12 billion covers approximately $8.2 billion in expected dividend payments,” before taking into account the effects of the capital’s capital. Working money or about $3 billion in expected DirecTV distributions.
Basic also had an optimistic view of the company’s wireless performance, particularly in light of investor discussion about the company’s pricing and promotional strategies.
“The increased prices of their pricing plans did not cause a spike and helped introduce the ARPU of the postpaid phone. [average revenue per user] growth for the first time in more than two years.” “This also sends a signal to the wireless industry that there is pricing power in this market.”
Pikyk sees more room for the company to grow ARPU as the year progresses.
admitted that “[i]Investors are understandably concerned that AT&T is buying up revenue growth by subsidizing the phone to both new and existing subscribers” but noted that the company was able to increase wireless earnings before interest, tax, depreciation, and amortization (Ebitda) last quarter. Additionally, it declined The company’s promotion rate compared to the previous year, indicating that the promotion cycle extends abroad.
While AT&T is feeling some pain in its wire business, Peake was impressed with the performance of the company’s fiber business, with net adding 25% over the previous year. He wrote, “This validates our industry assumptions about the target market share of excess fiber builders and the increased share that can be obtained in legacy markets.”
Overall, Bekek sees opportunities for AT&T moving forward, particularly given the latest figures it has flagged about pricing actions. “We continue to believe that wireless operators can increase prices and reduce costs,” he wrote, including through potential device subsidy cuts.
Basic has evaluated the stock as a buy with a target price of $26.
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