In Focus: AT&T
Thanks for checking out this week's In Focus, our look into a company, companies, or markets that made the Wall Street news cycle. This week we bring AT&T in focus.
When Boring is Bad
I like boring companies and boring investments. Boring companies have smart but boring executives who boringly work hard and increase their companies value at a boring pace. I invest my money, collect a boring dividend and watch my investment boringly increase over time.
Enter AT&T (T) which has been a boring company for a long time. Boring company, boring executives, with a nice and boring dividend, but no increase in value. The graphic below shows that even as revenue increased in 2015 and 2016, the boring stock traded sideways.
However after its acquisition of Time Warner, AT&T may be ready to leave it's boring days behind.
The New AT&T The new AT&T is a media/content juggernaut. Under the AT&T roof now resides TBS, TNT, HBO, The Cartoon Network, Tru TV, and the Bleacher Report to name a few. In restructuring plans announced earlier in the week, AT&T executives provided some insight into their plans to make the company less boring. AT&T plans to combine HBO with Turner channels TNT, TBS, and Tru TV, and plans to provide a Warner Media streaming offering.
Telephones and Content
We've seen the phone company buy a content provider before. Verizon (VZ) went all in on AOL and then Yahoo. Verizon was trading at around $49 per share when it purchased AOL in 2015 and Verizon's stock traded at around $46 per share in 2017 when it acquired Yahoo. It currently trades at $56.53 as of the time of this writing, no big whoop.
Will AT&T be different? AT&T investors are hoping so. I know some of you are asking how can I compare Time Warner to AOL and Yahoo? Simply, they are all money generating assets, but if not managed properly they are worthless; and that is the question. Can AT&T manage this Time Warner acquisition correctly?
New Era, Old Ideas
For the AT&T and Time Warner deal to work, old execs not only need to embrace new ideas, but they need to think of new ideas. Streaming is the hand-out, that's embracing a new idea. Without a second thought AT&T execs announced it's plans to enter the streaming wars that's an easy play, but what next? Where are the new ideas?
The rumor mill has it that HBO will become more like Netflix (NFLX) which is a terrible idea. When it comes to content, HBO is a gas guzzling Rolls Royce Phantom, Netflix is a Ford Escort, both will take you to a place, but it's the ride. The ride of the Phantom is unforgettable. Ask any viewer of 'Game of Thrones,' 'The Wire,' The Sopranos,' 'Rome,' or 'Oz,' the ride was incredible.
Outside of streaming, what can the old guards at AT&T implement in this ever growing, rapidly changing digital era? Will it be more for the sake of doing more? Will it be more for cheaper? We will have to wait and see, but I have no faith that this deal will bare fruit with Netflix like returns.
Back to Boring
At this time AT&T is a $218 billion enterprise. According to Yahoo Finance AT&T is expected to grow revenue by 7% in 2019 and the company also has a 6.82% dividend yield ($2.04). Some investors are banking on 5G to help out struggling telecommunications companies, but I don't think the hype that surrounds 5G will do much for AT&T's stock price. With that said this is a pick'em.
If you're looking for share price appreciation, then you should AVOID AT&T until the company gives a clearer picture as to what it can do with all of it's newly acquired assets. If you're an income investor then AT&Ts dividend is just what you may need and it's a BUY. I don't believe AT&T's stock will drop too much in price from here, my concern is that it won't rise in price anytime soon.
This is where I leave you, with an AVOID on AT&T if you're looking for share price appreciation, but a BUY if you're looking for a quality company with a good dividend. Thanks for checking out this weeks In Focus.