Shares of telecom major AT&T Inc. (T) have gained 10.2% in price over the past month and 1.4% year-to-date to close the last trading session at $18.84. The company’s better-than-expected third-quarter results and high dividend yield helped its stock attract investors’ attention amid the current uncertain economic conditions.

Despite the challenging macroeconomic environment, T’s earnings and revenue beat Wall Street estimates for the last reported quarter. Its 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 divestments of WarnerMedia and DirecTV have allowed the company to focus entirely on its wireless and broadband operations. The company recorded 708,000 postpaid phone net additions in the third quarter, higher than estimates. In addition, its 338,000 fiber broadband subscribers beat the forecast of 330,000. Its postpaid phone churn came in at 0.84% for the last reported quarter.

The postpaid phone net additions during the third quarter led to 2.20 million plus postpaid phone net adds, which is expected to be the industry’s best. 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.

Moreover, T’s forward annual dividend of $1.11 per share yields an attractive 5.89% at the current price. Its four-year average yield is 5.38%.

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. In addition, its adjusted EBITDA increased 4.7% year-over-year to $10.71 billion.

Weak Analyst Estimates

Analysts expect T’s EPS for fiscal 2022 and 2023 to decline 23.6% and 1.1% year-over-year to $2.60 and $2.57, respectively. Its revenue for fiscal 2022 and 2023 is expected to decline 25.9% and 1.7% year-over-year to $125.08 billion and $122.90 billion, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, T's 7.25x is 51.6% lower than the 14.99x industry average. Its forward P/S of 1.07x is 12.3% lower than the 1.22x industry average. Also, the stock's 7.44x trailing-12-month EV/EBITDA is 10.6% lower than the 8.31x industry average.

High Profitability

In terms of trailing-12-month EBIT margin, T’s 21.31% is 131.9% higher than the 9.19% industry average. Likewise, its 34.13% trailing-12-month EBITDA margin is 91.6% higher than the industry average of 17.81%. Furthermore, the stock’s 12.90% trailing-12-month net income margin is 189.4% higher than the industry average of 4.46%.

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 19 stocks in the Telecom – Domestic industry. Click here to access T’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

T is trading above its 50-day and 200-day moving averages of $16.97 and $18.50, respectively, indicating an uptrend. The company registered strong growth in postpaid wireless phone customers and fiber broadband subscribers last quarter. The company now expects strong revenue growth in its wireless service segment and is hopeful of surpassing its guidance for the year.

Given its discounted valuation, higher-than-industry profitability, and high dividend yield, 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 an A (Strong Buy) or B (Buy) rating: Spok Holdings, Inc. (SPOK), Ooma, Inc. (OOMA), and Verizon Communications Inc. (VZ).

T shares rose $0.05 (+0.27%) in premarket trading Tuesday. Year-to-date, T has gained 8.32%, versus a -15.96% 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.

More...