What to Expect from AT&T’s Q4 Earnings

Leading telecom giant AT&T (NYSE:T) is scheduled to report its fourth-quarter earnings results before the market opens on January 29. Let’s see what investors can expect from the company’s fourth-quarter results.

AT&T’s Q4 expectations

Wall Street analysts expect AT&T to post sales of $47.04 billion in the fourth quarter—a fall of 2.0% YoY (year-over-year) compared to $47.99 billion in the fourth quarter of 2018. Also, analysts expect the company’s earnings to rise by 1.2% YoY to $0.87 in the fourth quarter.

Currently, analysts expect the company’s sales in 2019 and 2020 to rise 6.3% and 0.4%, respectively. Meanwhile, they expect 0.6% and 1.7% adjusted EPS growth in 2019 and 2020, respectively.

In the fourth quarter, AT&T expects to lose traditional pay-TV customers due to stiff competition from online video streaming services like Amazon Prime and Netflix. However, the company will likely add new postpaid phone customers in the fourth quarter despite strong competition from smaller wireless players.

T-Mobile (NYSE:TMUS) will likely post sales of $11.81 billion in the fourth quarter—a rise of 3.2% YoY from sales of $11.45 billion in the fourth quarter of 2018. Also, analysts expect an adjusted EPS of $0.84 in the fourth quarter of 2019 compared to $0.75 in the fourth quarter of 2018.

Analysts expect Sprint (NYSE:S) to post an adjusted EPS of -$0.05 on revenue of $8.2 billion in the third quarter of fiscal 2019—quarter ended in December.

AT&T’s Q3 performance

In the third quarter of 2019, AT&T’s adjusted EPS increased by 4.4% YoY to $0.94, which was above analysts’ consensus estimate of $0.93. The company posted a consolidated total revenue of $44.59 billion—a fall of 2.5% YoY. AT&T’s revenue missed analysts’ consensus estimate by 0.9%.

In the September quarter, AT&T added 3.7 million net wireless subscribers in the US. The company also gained 101,000 postpaid phone net customers and 227,000 prepaid net customers in the quarter. The mobile operator reported a postpaid phone churn rate of 0.95%.

In the third quarter of 2019, AT&T lost 1.16 million traditional video subscribers on a net basis. The telecom company’s traditional video customer count fell 12.3% YoY to 20.4 million on September 30.

In comparison, Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR) lost 238,000 and 75,000 total video subscribers, respectively, in the September quarter. Meanwhile, Netflix gained 6.8 million subscribers worldwide in the quarter.

Adjusted EBITDA

In the fourth quarter, analysts expect AT&T to post an adjusted EBITDA of $7.46 billion for its combined domestic wireless operations (or AT&T Mobility). The amount could represent an adjusted EBITDA margin of about 41.1% for the quarter—higher than the 40.3% in the fourth quarter of 2018.

AT&T Mobility’s fourth-quarter adjusted EBITDA is expected to fall 0.1% YoY from $7.47 billion in the fourth quarter of 2018. In addition, the company’s consolidated adjusted EBITDA is expected to fall 1.8% YoY to $14.76 billion.

For the third-quarter combined domestic wireless operations, AT&T reported an adjusted EBITDA of $7.75 billion compared to $7.63 billion in the third quarter of 2018. The company’s adjusted EBITDA margin expanded to 43.8% in the third quarter from 43.0% in the third quarter of 2018.

Elliott Management’s stake

In September 2019, hedge fund Elliott Management revealed that it owns a $3.2 billion stake in AT&T. According to a CNN report, “AT&T’s stock could potentially surge to above $60 a share by 2021 if the company increased strategic focus, improved operational efficiency and enhanced leadership and oversight.” The report also said, “Elliott wants AT&T to sell many of its non-core businesses that are distractions and should not be part of the portfolio, proposing AT&T discuss spinning off DirecTV, its Mexican wireless business, and several other operations.”

The activist investor recommended that AT&T repurchase a higher number of shares, increase dividend payments, and reduce the high debt levels.

Analysts’ recommendations

According to data compiled by Thomson Reuters, 30 analysts are covering AT&T stock. About 43.3% have a “buy” rating, 50% have a “hold” rating, and 6.7% have a “sell” rating.

The average target price is $38.98, which implies an upside of about 2.3% based on the stock’s last closing price of $38.10. The target prices for AT&T stock vary. The highest target price is $47, while the lowest target price is $20.

T-Mobile and Sprint stocks are rated as a “buy” by 17 out of 22 analysts and two out of 17 analysts, respectively. T-Mobile and Sprint’s target prices of $91.05 and $6.41 imply an upside of 14.7% and 31.1%, respectively.

Stock performance

AT&T returned 23.4% in the last 12 months. In comparison, T-Mobile and Sprint have returned 15.1% and -23.2% in the last 12 months, respectively. Sprint stock is falling amid its pending merger deal with T-Mobile. The proposed $26.5 billion merger deal became public in April 2018. The merger contract still hasn’t closed. The proposed merger faces a multistate lawsuit filed to stop the combination. The Department of Justice and the FCC conditionally support the merger. Read T-Mobile and Sprint Merger Deal, Boom or Bust? to learn more about the merger deal.

On Monday, AT&T stock fell 1.22% and closed the trading day at $38.10. The stock is trading 31.7% above its 52-week low and 4.0% below its 52-week high.

AT&T stock is 2.0% and 1.3%, respectively, below its 20-day and 50-day moving averages. The stock is 0.7% above the 100-day moving average.

Currently, AT&T stock is trading close to the oversold zone with a 14-day RSI score of 40. AT&T’s 14-day MACD is -0.49, which shows that the stock is in a downward trading trend.

On Monday, AT&T’s dividend yield was 5.46%. T-Mobile and Sprint don’t pay stock dividends.

Read Will AT&T Stock Sustain Its Momentum in 2020?, Will Debt Affect AT&T’s Dividend Yield?, and AT&T Stock: Jim Cramer Likes It—Should You Buy? to learn more.

Stay tuned to see how AT&T performed in the fourth quarter and fiscal 2019.