AT&T: Q2 2021 Results Showed Little Improvement; Avoid (Preview)

Company Update (T US) (Neutral)

Summary

• Q2 2021 EBITDA in Mobility and Wireline segments was either flat or grew only slightly from Q1 and was significantly down year-on-year.

• We remain concerned about the structural issues in these segments, which we believe represent a material risk to future earnings.

• Warner Media is showing good progress in HBO Max subscriptions, but this did not help EBITDA and is small relative to the group.

• At $27.90, AT&T stock will have a post-deal dividend of approx. $1.16 (a 4.2% yield). Adjusting for spin-outs, the free cash flow yield is 12.8%.

• While AT&T's valuation appears cheap, we believe the material risks to its earnings outweigh the attraction. We remain Neutral AT&T.

Introduction

We review AT&T's Q2 2021 results, released this morning (July 22).

We initiated our coverage on AT&T stock with a Neutral rating in July. Historically, in the U.S. Communications sector, we have preferred Cable stocks, with Buy ratings on Charter and Comcast dating back to January 2020, as well as on Altice USA…