AT&T: New Standalone Company, Same Structural Risks; Avoid

(Preview) Company Update (T US) (Neutral)

Summary

• AT&T shares have regained 14% since the Warner Media spin-off and, at $20.69, now have a P/E of 8.5x and a Dividend Yield of 5.4%.

• New guidance set out in March includes a 10% growth in EBITDA by 2023, and CapEx tapering and Free Cash Flow rising thereafter.

• However, we see structural problems in AT&T's businesses, with Mobility in particular facing commoditization and tougher competition.

• Q1 2022 results support our view, with weak EBITDA growth and Average Revenue Per User falling in Mobility.

• Macro is now worsening, and we question AT&T's capital allocation. AT&T's risks outweigh a superficially cheap valuation. Avoid

Introduction

We review AT&T Inc. based on developments in the last few months. Since our last update in January, AT&T has spun off Warner Media, set out new guidance for the standalone company, and released Q1 2022 results. The macro environment has worsened significantly, with record inflation and fears about consumer spending.

We initiated a Hold rating on AT&T in J…