Telecom conglomerate AT&T Inc. (T) reported mixed third-quarter financial results. The company showed strong momentum in customer additions across its growing 5G wireless and fiber networks. It recorded total wireless net adds of 7.1 million, including 964,000 postpaid and 108,000 prepaid phone net adds.

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.

Despite sustained momentum in customer additions, T’s total operating revenues declined 4.1% year-over-year to $30.04 billion for the third quarter of fiscal 2022. The decrease reflects the impact of the U.S. Video separation in July 2021. Also, analysts expect the company’s revenue and EPS to decline 25.9% and 23.3% year-over-year, respectively.

Furthermore, the telecom giant pays a high-yielding dividend to its shareholders. T pays $1.11 as dividends annually, yielding 6.02% on the current share price. Its four-year dividend yield is 6.79%.

Shares of T have gained 31.3% over the past year to close the last trading session at $18.45. However, the stock declined 11.9% over the past six months.

Here is 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 EBITDA decreased 3.6% year-over-year to $2.20 billion.

However, the company’s adjusted operating margin came in at 35.7%, compared to 34.5% in the year-ago period. Income from continuing operations was $6.30 billion, compared to $5 billion in the previous year’s quarter. Also, its adjusted EPS increased by 3% year-over-year to $0.68.

Weak Analyst Estimates

Analysts expect T’s EPS for fiscal 2022 and 2023 to decline 23.3% and 1.3% year-over-year to $2.61 and $2.57, respectively. The company’s revenue for fiscal 2022 and 2023 is expected to decline 25.9% and 1.9% year-over-year to $125.08 billion and $122.74 billion, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, T’s 7.07x is 53.3% lower than the 15.15x industry average. Its forward EV/EBITDA of 7.36x is 8% lower than the 8.00x industry average. Also, the stock’s forward Price/Sales of 1.05x is 12.8% lower than the 1.21x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, T’s 54.35% is 8% higher than the 50.32% industry average. Likewise, its trailing-12-month EBITDA margin of 34.13% is 80.1% higher than the industry average of 18.95%. Also, the stock’s 12.90% trailing-12-month net income margin is 186.2% higher than the industry average of 4.51%.

POWR Ratings Show Promise

T has an overall rating of C, which equates to a Neutral 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 lower-than-industry valuation metrics. It has a C grade for Sentiment, consistent with its weak revenue and earnings growth estimates.

T is ranked #5 out of 19 stocks in the F-rated Telecom – Domestic industry. Click here to access T’s Growth, Momentum, Stability, and Profitability ratings.

Bottom Line

The company recorded strong growth in wireless postpaid phone customers and fiber broadband subscribers in the last quarter. Moreover, it expects strong revenue growth in its wireless service segment. However, analysts seem bearish about the company’s prospects, predicting a significant decline in revenue and EPS for fiscal 2022 and 2023.

Amid a highly uncertain macro environment, it could be wise to wait for a better entry point in this telecom stock.

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

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

T shares were trading at $18.41 per share on Friday morning, down $0.04 (-0.22%). Year-to-date, T has gained 5.85%, versus a -18.55% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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