After displaying healthy performance in 2016, AT&T Inc.’s (T, Financial) stock price has been on a downhill run this year. The telecommunication giant’s stock trades near its two-year low and is down almost 21% year to date. The reasons behind the company’s downturn appear to be the slothful growth of its wireless business, elevated debt levels and declining video subscribers.
AT&T reported third-quarter results on Oct. 24. For the quarter, the mobile giant posted adjusted earnings per share of 74 cents, missing the analysts' estimate by 1 cent. Despite the miss, the bottom line was up 4% year to date. The company’s earnings were negatively influenced by higher interest expense for the pre-funding of its Time Warner (TWX, Financial) acquisition and storm-related expenditures.
On the other hand, the company’s revenue came in at $39.67 billion, again missing the consensus by $450 million. Also, that figure represents a drop of 3% year over year. As a matter of fact, the mobile giant’s revenue growth slowed considerably after the second-quarter of 2016. Over the past four quarters, including the recent quarter, its revenue growth has been in the red.
Looking at the figures above, the mobile giant’s third-quarter result might seem disappointing. An in-depth look, though, suggests that the third quarter was not that bad. The company generated free cash flow of $5.9 billion, a surge of 13.5% year over year.
Apart from this, the wireless net additions were 3 million vs. 2 million expected. Also, the mobility postpaid churn rate was 0.84%, 20% less than the expectations.
Despite missing estimates on both the top line as well as the bottom line, AT&T remains on track with all of its full-year guidance. Although the company recently extended its deadline to complete its proposed acquisition of Time Warner primarily due to pending regulatory approval, it still expects to close the deal by the end of 2017.
AT&T is one of the largest wireless carriers around the globe. After completing the acquisition of Time Warner, it will also become one of the largest media companies globally. The extensive portfolio will allow the company to bundle several services together to appeal to customers.
Summing up
Although AT&T has been facing several headwinds over the past few quarters, it still isn’t out of the race. Shares of AT&T were down nearly 2.5% on Oct. 24 after the market close. Butit was probably not a quarter that deserved a hefty selloff. Also, the mobile giant’s stock price is down almost 5% since reporting its third-quarter results.
The telecommunication giant currently offers a juicy, forward dividend yield of 5.62%, which is highly attractive. It is obvious for investors to wonder whether the company will cut its dividend going forward bearing in mind the ongoing issues. The company is aggressively trying to adapt to the changing environment of the industry which will reap fruitful results going forward.
On the other hand, the stock currently trades at a price-earnings (P/E) ratio of 16.4, considerably below the industry’s average, suggesting it is cheaper at current prices.
As a result, the company’s weak performance this year along with its recent selloff presents a good buying opportunity for income investors.
Disclosure: No positions in the stocks mentioned in this article.
