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Copper wire strippers11/9/2023 ![]() Our fair value estimate implies an enterprise value of 8 times our 2023 EBITDA estimate and a 7% free cash flow yield. Our $25 fair value estimate assumes AT&T will deliver modest revenue growth and gradually expanding margins over the next several years as its wireless and fiber network investments pay off. With its 5-star rating, we believe AT&T’s stock is significantly undervalued compared to our long-term fair value estimate. AT&T has continued to defend its free cash flow target for 2023, and it should be in a position to at least hold cash flow stable next year, depending on what happens with its DirecTV partnership, and grow cash flow thereafter. The level of competition is gradually diminishing, and we’re starting to see pricing creep up. Verizon Stock: A Dividend Payer Yielding 7% With 60% Upside What’s Next for AT&T Stock?Īn argument for owning AT&T is that the wireless industry is still in the early stages of realizing the benefits of past consolidation, especially T-Mobile’s TMUS merger with Sprint. The carriers have all denied any interest in working with Amazon, but there’s still a fear that one will break ranks and allow it to enter and disrupt the market.ĪT&T reported weak free cash flow during the first quarter ($1 billion) relative to management’s forecast for the year ($16 billion). Another issue is the possibility that AMZN may enter the market with a similar wholesale arrangement. ![]() The companies are leasing capacity on Verizon’s VZ network to offer wireless service. In addition, cable companies have been taking wireless market share with aggressive bundling promotions, especially Charter Communications. Other areas investors were excited about a couple of years ago, such as industrial automation or virtual reality, haven’t panned out-at least not yet. But the recent pace of growth is unsustainable in the longer term, given the size of the United States. There has been strong postpaid wireless phone customer growth since the onset of the COVID-19 pandemic, and AT&T has done a nice job of participating in that growth. The industry, including AT&T, shelled out more than $100 billion for additional spectrum at a series of auctions in 2020-22 while also spending to upgrade networks. Notably, there’s been a lack of clear revenue growth tied to 5G network deployments in recent years. Outside the lead issue, the telecom sector has faced a number of headwinds. While these details don’t put the issue to rest, AT&T believes they provide a frame of reference concerning its potential liability. In a follow-up conversation, AT&T indicated that these figures encompass all of its potential exposure, including any abandoned cables. The “overwhelming majority” of these cables remain in service. Two-thirds of this cable is buried or in conduit, and the vast majority of the remainder is strung on poles, with only a very small percentage underwater. Nothing suggests telecom firms failed to follow proper procedures to protect employees when dealing with these cables, which were last deployed in the 1960s.ĪT&T has disclosed that lead-clad cable constitutes less than 10% of its copper network based on strand miles. ![]() The Environmental Protection Agency has also studied cable sheathing materials, including through a partnership with the University of Massachusetts’ Toxic Use Reduction Institute. ![]() Both the Centers for Disease Control and the National Institutes of Health websites house research conducted in the 1990s around complaints to OSHA from wire strippers who reported elevated blood lead levels, with steps to ensure worker safety. ![]() The WSJ cites a 2010 presentation to AT&T employees as proof that the firm has been aware of the issue, but that is not in dispute. In more than two decades covering the telecom industry, we’ve never heard mention of an issue related to lead in cable sheathing. ![]()
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