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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Heavier Than Expected Content Investment Dents AT&T’s 2022 Outlook; FVE Down to $35

Analyst Note

| Michael Hodel, CFA |

AT&T posted mixed fourth-quarter results and 2022 expectations. The wireless business continues to perform well, attracting customers at a solid clip. While we have questions about the firm’s promotional strategy, management still expects to deliver at least 3% wireless service revenue growth in 2022, in line with Verizon’s forecast. HBO Max regained momentum in the U.S., but revenue per customer was weak and management expects far lower Warner margins in 2022 than we had expected. Overall, the firm expects to generate $23 billion of free cash flow this year, down from $27 billion in 2021, reflecting heavy investments in networks and content, which we believe are necessary to protect and build on its narrow economic moat. We are lowering our fair value estimate to $35 from $36 but still believe the shares are substantially undervalued.

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Company Profile

Business Description

Wireless is AT&T’s largest business, contributing about 40% of revenue. The firm is the third-largest U.S. wireless carrier, connecting 66 million postpaid and 17 million prepaid phone customers. WarnerMedia contributes a bit less than 20% of revenue with media assets that include HBO, the Turner cable networks, and the Warner Brothers studios. AT&T plans to spin Warner off and merge it with Discovery to create a new stand-alone media firm. The firm recently sold a 30% stake in its traditional television business, which serves 15 million customers and generates about 17% of sales. This business will be removed from AT&T's financials going forward. Fixed-line telecom services provided to businesses and consumers account for about 20% of revenue, serving about 15 million broadband customers.

Contact
208 S. Akard Street
Dallas, TX, 75202
T +1 210 821-4105
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 230,000

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