AT&T: The Risks Are Too High (Preview)

Coverage Initiation (T US) (Neutral)

Summary

• Despite the DirecTV and Warner Media disposals, 78% of AT&T stock's current value is in the telecoms businesses being retained.

• Telecoms is a commodity business, and AT&T Mobility shows the signs of a bad one, soon to be worse as cable operators expand there.

• The Consumer Wireless business has seen falling EBITDA even during COVID-19; the Business Wireline business is in structural decline.

• Higher CapEx after the spin-offs will not help much, as these will only close in H2 2022, and cable operators have already invested.

• At $29.23, AT&T stock has a post-deal Dividend Yield of 4.0%; adjusted FCF Yield is 12.3%, but outweighed by qualitative concerns. Avoid.

Introduction

In this article we review AT&T and explain why investors should avoid it.

AT&T has announced two major disposals - Warner Media and DirecTV. Once the two transactions have closed, nearly all of its EBITDA will be from Mobility, Consumer Wireline and Business Wireline in the U.S. 78% of its current market capitalizati…