6. AT&T Inc. (NYSE:T)
Forward Price-to-Earnings Ratio: 9.7
Number of Hedge Fund Holders: 71
AT&T Inc. (NYSE:T) is one of the largest telecommunications companies in the world. It offers a range of products and services, including wireless and wireline phone services, broadband internet, television, and digital advertising, and has a significant presence in the media industry through its ownership of Warner Bros. Discovery, which was formed in 2022 when AT&T Inc. (NYSE:T) spun off WarnerMedia and merged it with Discovery, Inc.
It’s focusing on modern internet solutions, especially expanding its 5G and fiber networks. The focus on fiber is important because it offers much faster and more reliable internet than cable. People now need faster internet because they use more data.
The company’s revenue decreased slightly year-over-year in Q2 2024 by 0.4%, but still earned $0.57 per share. Most of the revenue came from Mexico, and the company added 419,000 new postpaid phone customers. The average revenue per postpaid phone customer increased by 1.4%. Mobility service revenues grew by 3.4%, driven by improved pricing and a balanced go-to-market strategy. Overall broadband revenues increased by 7%, supported by a significant 18% rise in fiber revenues.
For the whole year, broadband revenue is expected to grow by more than 7%. The mobile business is doing well and is expected to grow in the second half of 2024. Selling both mobile and internet services together is bringing good returns.
The company has fiber internet available to ~28 million homes and businesses and is on track to reach over 30 million locations by the end of 2025. It’s a good investment because it focuses on modern internet solutions, is expanding its 5G and fiber networks, and offers fast and reliable internet. AT&T Inc. (NYSE:T) can charge more for its internet because of the pricing power it holds, which helps it stay profitable. Hence, it’s well-positioned for further growth.
Miller Value Income Strategy made the following comment about AT&T Inc. (NYSE:T) in its Q3 2023 investor letter:
“Our third-largest holding at quarter end was AT&T Inc. (NYSE:T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash flow, implying a forward free cash flow yield north of 15%. Just under half of free cash flow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash flow model will suggest that intrinsic value for shares begins with a “2,” suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio.
AT&T looks particularly attractive when compared to some of the larger names dominating the S&P 500. Compare the stock to Apple, for instance, whose revenues and profits are likely to shrink this year, even as it trades at 29x this year’s earnings estimate. The ongoing return to rationality and capital accountability, along with extreme valuations in the megacap tech stocks, have us more excited about our portfolio’s prospects than we can remember for quite some time. As always, we remain the largest investors and welcome any questions or comments.”
