Despite the challenging macroeconomic environment, telecommunications giant AT&T Inc.’s (T) earnings and revenue beat Wall Street estimates in the last reported quarter. T’s EPS beat analyst estimates by 10.4%, while its revenue came 0.6% above the consensus estimate. The company’s revenue declined on a year-over-year basis, but the decline can be attributed to the divestments of WarnerMedia and DirecTV.

The company recorded 1.5 billion postpaid phone additions in the third quarter, higher than estimates. In addition, its 338,000 fiber broadband subscribers beat the 330,000 estimates. Its postpaid phone churn came in at 0.84% for the last reported quarter.

T’s CEO John Stankey said, “Our results show our strategy is resonating with customers as we continue to see robust levels of postpaid phone net adds and approach 1 million AT&T Fiber net adds for the year.”

“Our disciplined go-to-market approach is helping drive healthy subscriber growth with high-quality customers. As a result, we now expect to achieve wireless service revenue growth in the upper end of the 4.5% to 5% range. We remain confident in our ability to achieve, or surpass, all our financial commitments for the year, while still investing to bring our customers the industry’s best services,” he added.

T’s forward annual dividend of $1.11 per share yields an attractive 6.11% at the current price. Its four-year average yield is 7%.

Raymond James analyst Frank Louthan has upgraded T from Outperform to Strong Buy, with a target price of $24. Louthan believes T has better wireless subscriber growth, EPS growth, and margin expansion outlook than its peers. “We believe AT&T can continue to outperform Verizon for the next few quarters,” he added.

The stock has declined 2.2% in price year-to-date and 4.4% over the past year to close the last trading session at $18.17. Wall Street analysts expect the stock to hit $19.91 in the near term, indicating a potential upside of 9.6%.

Here’s what could influence T’s performance in the upcoming months:

Mixed Financials

T’s total operating revenues declined 4.1% year-over-year to $30.04 billion for the third quarter ended September 30, 2022. The company’s total operating expenses declined 4.2% year-over-year to $24.03 billion. Its adjusted operating margin came in at 35.7%, compared to 34.5% in the year-ago period. Also, its adjusted EPS increased 3% year-over-year to $0.68.

Weak Analyst Estimates

Analysts expect T’s EPS for fiscal 2022 and 2023 to decline 23.6% and 0.9% year-over-year to $2.60 and $2.57, respectively. Its revenue for fiscal 2022 and 2023 is expected to decline 25.8% and 1.9% year-over-year to $125.24 billion and $122.85 billion, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, T's 7x is 50.6% lower than the 14.16x industry average. Its forward P/S of 1.03x is 10.7% lower than the 1.16x industry average. Also, the stock's 7.15x trailing-12-month EV/EBITDA is 7.2% lower than the 7.70x industry average.

High Profitability

In terms of trailing-12-month EBIT margin, T’s 21.28% is 129.6% higher than the 9.27% industry average. Likewise, its 34.10% trailing-12-month EBITDA margin is 87.7% higher than the industry average of 18.16%. Furthermore, the stock’s 12.90% trailing-12-month net income margin is 169.3% higher than the industry average of 4.79%.

POWR Ratings Show Promise

T has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. T has a B grade for Value, in sync with its discounted valuation.

It has a B grade for Quality, consistent with its high profitability.

T is ranked #4 out of 20 stocks in the Telecom – Domestic industry. Click here to access T’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

T registered strong growth in postpaid wireless phone customers and fiber broadband subscribers last quarter. With its divestment of WarnerMedia content arm now complete, analysts believe that T’s growth will attract investors as the cyclical elements of the business are no longer present.

Given its discounted valuation, high profitability, and increasing focus on 5G services, it could be wise to invest in the stock now.

How Does AT&T Inc. (T) Stack Up Against Its Peers?

T has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Telecom – Domestic industry with a B (Buy) rating: Spok Holdings, Inc. (SPOK), Verizon Communications Inc. (VZ), and Ooma, Inc. (OOMA).

T shares were trading at $18.37 per share on Friday morning, up $0.20 (+1.10%). Year-to-date, T has gained 5.62%, versus a -19.72% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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