AT&T: Poor Business Quality Exposed By Q2 Macro Headwinds

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

Summary

• AT&T shares have fallen more than 10% since Q2 results on Thursday and are now at a 7.5x P/E and a 6.0% Dividend Yield.

• Q2 results showed the poor quality of its businesses when facing macro challenges. EBITDA was flat and 2022 Free Cash Flow was cut.

• Mobility had weak pricing despite high inflation, its EBITDA margin fell and its growth required large CapEx and working capital.

• Business Wireline EBITDA is now expected to fall low-double-digits in 2022. Consumer Wireline lost 25k broadband subscribers in Q2.

• With the stock at $18.38, while valuation appears superficially attractive, they are outweighed by AT&T’s structural challenges. Avoid.

Introduction

AT&T Inc. shares fell 7.6% on Thursday (July 21) after the company released Q2 2022 results, and are down another 2.9% as of 11:50 am EST on Friday.

We initiated a Hold rating on AT&T in July 2021, expressing our view that shares should be avoided. Since then AT&T shares have lost 10.6% in a year (adjusted for the $5.92 day-1 value of…