I proceed to fee AT&T Inc.’s (NYSE:T) shares as a Buy.
In my prior September 13, 2022 write-up for AT&T, I made up my mind that “T’s stock price should go back to the $20 price level or higher.” Following my earlier replace for T, AT&T’s stock worth has gone up by +11.3% from $17.18 (worth at publication of my earlier article) to shut at $19.12 as of November 25, 2022. During this similar interval, the S&P 500 declined by -0.3%.
I flip my consideration to AT&T’s 2023 forecast and outlook with the present article. T needs to be in place to realize greater free money move and additional share worth appreciation subsequent yr. AT&T’s latest administration feedback at an investor convention and its revised 2022 monetary steering ship constructive alerts in regards to the firm’s efficiency within the coming yr. As such, I determine to depart my Buy ranking for AT&T unchanged.
AT&T Stock Key Metrics
It is related to research AT&T key metrics referring to the corporate’s most up-to-date quarterly monetary outcomes and its up to date full-year administration steering, previous to evaluating how T will carry out subsequent yr.
With regards to AT&T’s latest quarterly monetary efficiency, T’s precise Q3 2022 non-GAAP adjusted earnings per share or EPS of $0.68 exceeded Wall Street analysts’ consensus backside line projection of $0.62 by a big +10%.
Furthermore, AT&T’s postpaid telephone internet provides (T’s key working metric) amounted to roughly 708,000 within the third quarter of this yr, beating the sell-side’s consensus estimate of 564,000 by a considerable +26% as per S&P Capital IQ’s consensus information.
In phrases of the corporate’s near-term prospects, there are three objects referring to AT&T’s FY 2022 monetary steering as per its Q3 2022 monetary outcomes press launch which are value highlighting.
Firstly, T raised the corporate’s 2022 non-GAAP EPS steering from $2.42-$2.46 beforehand to a minimal $2.50 now. Secondly, AT&T left its current 2022 wi-fi service income development steering of +4.5%-5.0% unchanged, however it highlighted that it ought to hit “the upper end” of this +4.5-5.0% vary. Thirdly, the corporate famous that it ought to “achieve, or surpass” its different “financial commitments (guidance) for the year” together with metrics like whole income development, non-GAAP adjusted EBITDA, and free money move.
In a nutshell, AT&T’s key metrics had been wonderful, which provides buyers the boldness that the stock ought to carry out effectively in 2023.
What Are AT&T Catalysts To Watch For?
In my view, there are a number of re-rating catalysts for AT&T which are value watching out for.
I beforehand talked about in my mid-September 2022 article that one “key catalyst for AT&T” is “above-expectations free cash flow for 2023.”
In this part, I contact on the opposite potential catalysts for AT&T.
One of the catalysts is higher-than-expected dividends for T.
The market consensus expects AT&T to ship a full-year dividend per share of $1.12 for each fiscal 2023 and FY 2024, which is identical as what the corporate paid out for FY 2022. If T provides any indications in 2023 that it’d elevate dividends in 2024, this might push AT&T’s share worth up.
Notably, T famous on the firm’s latest Morgan Stanley’s (MS) European Technology, Media & Telecom Conference on November 17, 2022 that “do we raise the dividend” is among the key capital allocation points it would contemplate after its internet debt-to-EBITDA ratio goes right down to 2.5 instances. According to consensus information taken from S&P Capital IQ, AT&T’s internet debt-to-EBITDA metric is predicted to say no to 2.57 instances by fiscal 2024. Assuming AT&T continues to realize good progress in its deleveraging efforts, it’s seemingly that T’s administration might make feedback in 2023 that indicate a return to dividend development in 2024.
Another catalyst is AT&T’s continued outperformance in opposition to its key rival, Verizon (VZ).
I highlighted earlier that AT&T delivered a formidable postpaid telephone internet provides of 708,000 for the third quarter of 2022. In distinction, VZ solely generated postpaid telephone internet provides of round 8,000 in the latest quarter. Looking forward, Barclays’ (BCS) analyst Kannan Venkateshwar takes the view that it will likely be “tough for Verizon to dig out of its present challenges” anytime quickly as famous in an October 24, 2022 Seeking Alpha News article.
It is noteworthy that AT&T nonetheless trades at a reduction to Verizon, regardless of T’s superior efficiency within the latest quarter. As per S&P Capital IQ’s valuation information, the market presently values AT&T and Verizon at consensus ahead subsequent twelve months’ normalized P/E multiples of seven.5 instances and seven.8 instances, respectively. If AT&T can proceed to carry out higher than its key competitor VZ, T is in place to slim the valuation hole between the 2, and even trade at a better P/E a number of than Verizon in time to return.
Separately, additionally it is essential to assess the change in analyst sentiment for AT&T, which is a significant driver of its future share worth efficiency. In the next part, I focus on about how sell-side analysts are excited about T’s shares.
What Do Analysts Think Of T Stock?
My opinion is that analysts have gotten more and more constructive about AT&T’s stock.
In the final three months, 24 of the 31 Wall Street analysts overlaying T’s shares elevated their respective FY 2022 backside line projections for the corporate. In comparability, simply two of the analysts determined to decrease their 2022 EPS forecasts for AT&T over the identical interval.
Similarly, the typical sell-side analyst ranking for AT&T went up from 3.47 as of August 30, 2022 to three.55 as of November 27, 2022. A ranking of 1 represents a Strong Sell, whereas a rating of 5 is equal to a Strong Buy.
In conclusion, I believe that the sell-side analysts have a good view of T stock, and that is backed up by the change within the consensus earnings estimates and analyst rankings for the stock.
What Is The Forecast For 2023?
Earlier, I forecasted that AT&T’s share worth can attain $20, and T’s final performed stock worth of $19.12 as of November 25, 2022 is simply -4% beneath my prior goal worth. Moving forward, I forecast that T’s stock worth will go as much as $23.13 or greater subsequent yr, which interprets into an upside potential of +21%. My up to date worth goal of $23.13 for T is calculated primarily based on a 9.0 ahead P/E a number of utilized to its consensus FY 2023 normalized EPS of two.57.
As mentioned on this article, I’m of the view that the three catalysts for AT&T in 2023 are higher-than-expected free money move within the following yr, a sign of a dividend hike for 2024, and better-than-expected efficiency as in comparison with VZ.
At the latest Morgan Stanley’s European Technology, Media & Telecom Conference in mid-November 2022, AT&T provided expectations of an improved set of leads to 2023 vis-a-vis 2022. Specifically, T highlighted the larger-than-expected growth of its “wireless subscriber base”, “higher (than expected) ARPUs”, “transformation (costs) savings” and decrease “5G costs”, in response to a query about its 2023 outlook.
Taking into account T’s Q3 efficiency, its 2022 steering and up to date administration feedback, I count on the three re-rating catalysts for T to be realized, and I’m assured in my 2023 forecast for AT&T. Specifically, the market consensus sees T’s free money move rising from $14 billion in FY 2022 to greater than $18 billion (supply: S&P Capital IQ) for FY 2023.
Is T Stock A Buy, Sell, or Hold?
T stock stays as a Buy-rated stock. I’m of the view that each AT&T’s monetary and stock worth efficiency needs to be higher subsequent yr. T’s free money move ought to develop considerably in 2023; whereas T’s P/E a number of ought to re-rate on expectations of dividend development for 2024 and its continued outperformance in opposition to Verizon.