With AT&T’s (NYSE: T) WarnerMedia’s acquisition behind it, investors may turn their attention back to the company’s cash flow growth, relative to its cash burn rate.
Despite the massive debt incurred, AT&T has more than enough cash flow to cover debt interest payments. While holding the stock, income investors will continue to collect a solid dividend yielding around 6%.
On Oct 17, the DOJ set a date for the appeals court to look at the AT&T/Time Warner merger. Although the government has a weak case against the telecom giant but it is still an unnecessary distraction for the company. Investors may treat this as a non-event.
AT&T’s immediate concern is maximizing profit growth at WarnerMedia. The value of content continues to increase but AT&T must find ways to benefit from this trend. Talk of it starting a streaming service could drive the stock multiples. A more likely scenario is that T stock will trade in a range, near current levels, for the next few quarters.
For income investors, if the stock moves nowhere, that is a favorable outcome compared to a steady drop. Interest rates are rising, so investment dollars that would have gone into T stock may now flow to bonds and other debt instruments.
AT&T’s P/E of 18x if comparable to that of Verizon’s 16x P/E. But if AT&T affirms its guidance and outlook, the forward P/E of 9x makes its stock a bargain.
