AT&T · Company Review

Company Review: AT&T

This installment of the Company Review will be on the ever so popular telecom company, AT&T. If you look on their websites and read reviews, it’s clear that many consumers either love or hate the company. Not many people in the lukewarm category, so there are clear indications of how people perceive AT&T’s progress in all of the services they offer. Investors, on the other hand, seem to be in one accord with a positive outlook on the direction AT&T is taking. Here’s a bit of my perspective on it.

Company Snapshot
Ticker Symbol: T
Current Price: $41.65
52 Week Low: $36.10
52 Week High: $43.89
Dividend (Yield): $1.96 (4.60%)
EPS: 20.05
P/E Ratio: 2.1

The Good
One of the good things that AT&T is doing today is merging with Time Warner. On one hand, AT&T knows that the Time Warner business is profitable. Over the past three years,  Time Warner has seen growth in its gross profit of $11.48 billion(2014), $11.96 billion(2015), and $12.94 billion(2016). Time Warner has also shared the wealth amongst it’s investors through a steadily growing dividend, which seems to follow how AT&T traditionally shares its profits with shareholders. Basically I don’t see a conflict in investor relations, which may be a factor in some mergers with companies with differing views on how to deal with investors

The other part of this that is somewhat encouraging is that AT&T not too long ago acquired DirectTV. For those who had DirectTV satellite may have noticed the AT&T logo pop up upon reseting your signal or on a screen for a paid programming. With the addition of the content that Time Warner can bring to the table, AT&T may be able to cut some costs and effort to provide their customers access to improved programming. As a customer I hope this works.

And lastly has anyone had AT&T representatives in their neighborhood marking off wiring for the upcoming AT&T Fiber? Google had first dibs on growing their super fast speed internet service, but in some locations, Google fell off tremendously and even cause some damage to property while laying down lines in Charlotte, NC. Now the waves are a bit clearer for the more mature AT&T company to take over the fast speed internet offerings.

The Bad
The AT&T/Time Warner merger will cost AT&T $107.50 per outstanding share of TWX, which is higher than Time Warner’s 52 week high($99.29) and higher than the stock has been valued on the market over the past 5 years. This seems like a bit over fair value since the EPS and P/E ratio for Time Warner sit it’s price around $97. I think AT&T is really hoping that this pays out providing them with greater profits in the long run.

Another point of concern is that workers in California and Nevada were on strike because they felt they were required to do work that was not within their regular work expertise. What concerns me is how wide spread this practice is because if workers aren’t familiar with all they are doing, human performance becomes a concern. I have faith in people for the most part, but if they are disgruntled then it rings an alarm for me.

The Ugly
Ugly is the battle of fierce competition…or so they think. The best part about the telecommunications business for consumers is the fact that there is such fierce competition. Price fixing is hard to do when everyone is realizing that unlimited data is king and that cable as we knew it in the past is not the way it will be in the future. With the upcoming merger with Time Warner I mentioned before, AT&T will now be in direct competition with the likes of Netflix and Hulu to provide top quality content. They already have the wireless battle with Verizon, Sprint, and T-Mobile. The wireless battle takes a toll on profit margins at AT&T as everyone is trying to offer the most data and best service for the lowest price.  My only concern is if that type of competition for content offering will also wear on the company’s profits.

Hope this was a bit of useful information on a relatively new company I hold in my retirement account. Until next post folks…

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