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AT&T Releases Weak 1Q20 Results, But Ample Cash to Support Dividend

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April 23, 2020

AT&T (T) has released soft results for the first quarter of 2020, but nonetheless reassured investors that it has sufficient free cash flow to support its dividend payout. Shares fell 2% in Wednesday’s trading, bringing T’s year-to-date loss to 25%.

Most notably, revenue declined 4.6% year-over-year, 2% worse than expected, mostly due to lower growth at WarnerMedia and Latin America. The company also posted EBITDA 1.7% below consensus, and EPS of $0.84 a penny below.

Meanwhile capex of $4.97B came in 2.8% above consensus, while FCF of $3.90B was 24% below. However, AT&T did add 163,000 postpaid phone subscribers, doubling from 80,000 in the same period last year.

“The COVID pandemic had a 5 cents per share impact on our first quarter,” said Randall Stephenson, AT&T Chairman and CEO. “We have a strong cash position, a strong balance sheet, and our core businesses are solid and continue to generate good free cash flow — even in today’s environment,”

“As a result, we’re able to continue investing in critical growth areas like 5G, broadband and HBO Max, while maintaining our dividend commitment and paying down debt” he told investors.

At the same time, due to the lack of visibility related to the COVID-19 pandemic and recovery, the company withdrew its financial guidance.

Following the report, Oppenheimer analyst Timothy Horan reiterated his buy rating with a $47 price target (59% upside potential).

“AT&T has relative EBITDA stability and is focused on investing in growth areas” he explained. “Importantly, the dividend seems safe and debt reduction can continue with what we and the company estimate to be a 60% payout ratio.”

The company will get more aggressive on expense reductions, he added.

Overall, the stock scores a Hold analyst consensus- with most analysts choosing to remain on the sidelines for now. The average analyst price target works out at $35, indicating 20% upside from the current share price. (See AT&T stock analysis on TipRanks).

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