AT & T (NYSE: T) has missed the mighty bull run which so many companies benefited from. While AT & T has generated a negative return over the past five years, without taking dividends into consideration, they have been reinventing themselves for the future. Through the acquisition of Time Warner, which is now the WarnerMedia segment, AT & T has transformed into a modern media company with a built-in direct to consumer vehicle. I believe AT & T is drastically underrated and, at the very least, should trade just over $ 40 per share.
Years of investments have transformed AT & T into a telecommunications powerhouse that will create value for investors
AT & T has transformed into a modern media company owning the actual service that is used to engage in content in addition to the current and future library of WarnerMedia. AT & T has over 170 million direct-to-consumer relationships across their wireless, pay-TV and broadband services in the US, wireless in Mexico, and DIRECTTV in Latin America. The direct-to-consumer relationship expands to 370 million when WarnerMedia's digital assets are incorporated, which include CNN.com, Bleacher Report, and their other media. AT & T is at the very beginning of this transformation, and they will most likely use large data to analyze all the data provided by these relationships to develop the most effective advertising mods to make ads for their services more relevant.
AT & T has multiple Catalysts to increase the price of dividends
AT & T Communications has returned to revenue growth in 2018, as mobility grew 2.1%, and service revenue grew 0.9%. GWS, which is America's largest test, is recognized as the best wireless network for national overall wireless performance. The Entertainment group ended the year with 24.5 million video subscribers, which is more than any other U.S. pay-TV provider while covering over 11 million customer locations through their fiber network. The Business Wireline division provided $ 10.6 billion in EBITDA while extending high-speed fiber to cover almost 2.2 million U.S. business customer locations.
In 2019, AT & T will look to add subscribers through their mobility unit and increase revenues. T plans to lead the market by aggressively rolling out 5G. By mid-2019, T plans to have 5G available in sections of 19 cities. The Entertainment Group will look to increase its fiber network to reach more than 3 million customer locations, increasing their fiber penetration.
WarnerMedia grew overall revenue by 5.5% as Turner increased by 3.9%, HBO increased by 3.9%, and Warner Bros increased by 6.3%. In addition to the growth, WarnerMedia continued to publish quality content as they delivered 37 Primetime Emmy Awards, with HBO earning more awards than any other network for the 17th consecutive year. Warner Bros. Movies grossed more than $ 5.5 billion in global box office receipts, while receiving 11 Academy Award nominations.
In 2019, WarnerMedia will launch a live streaming video product in Q4. They have previously started production on more than 70 Warner Bros. series for the 2018-1919 television season and the plan is to increase content development to further engagement across their IPs.
AT & T Latin America provides mobile services in Mexico to consumers and businesses while distributing pay-TVs across 11 countries in South America and the Caribbean. In 2018, Mexico Wireless added 3.2 million for a total of 18.3 million, which was a 21% year-over-year increase. Over the past ten quarters, T has added more subscribers in Mexico than any other provider. AT & T will have a success in 2019, as they look to increase their revenue from sustained subscriber growth. AT & T has also completed its LTE network investment and opened the first AT & T Foundry Innovation Center in Latin America, which will develop technology solutions for emerging markets.
Their EBITA is expected to continue its improvements and become positive in the second half of the year. Latin America is a huge opportunity for AT & T, as Mexico alone has a growing population of almost 132 million people. The median age in Mexico is 27.9 years old, which makes Mexico a target-rich environment as the lifespan for customers has long life.
AT & T's financials are overshadowed by their debt as 2018 illustrated many positive qualities
If I started off A conversation asking you to invest in an organization with just over $ 176 billion in debt, you would probably think I was a nut. What about if I followed up with the fact that the same company has over $ 531 billion in total assets and $ 131 billion of their total assets were in property, plant and equipment? While the $ 176 billion is a large pile of debt, the equity holders are equal to $ 184 billion, which is 80.5% of the market cap. In 2018, AT & T acquired Time Warner, and when the year ended, the cash outflows and free cash flow both significantly increased from 2017.
The combination of internal efficiencies and the acquisition of Time Warner may have provided AT & T with vitamin boost it was looking for From the close of 2017 to 2018, T's cash from operations increased by 14.74% while their free cash flow jumped by 35.76%. T once again increased their dividend distribution to shareholders, increasing their payouts by 11.67%, while their cash after dividends increased by 100%. If T can turn this into a trend and not just a one-year pop, their best days could be ahead of them, as they are committed to reducing their debt and de-levering their financials. At the close of the Time Warner merger, the debt load was $ 180 billion. In 2019, T plans to allocate $ 12 billion from free cash flow after dividends and an additional $ 6-8 billion from cash generated from asset monetization initiatives to reduce debt. By the close of 2019, AT & T is projecting to reduce their debt level to $ 150 billion, as they will have retired $ 30 billion in debt in less than two years. [Source: Stew Fiorillo] (Source: AT & T 2018 Annual Report)
(Source: AT & T Investor Update)