Cautious investors who watch out for highly indebted media and telecom firms would best avoid Paramount (PARA) and AT&T (T).
Rumors circulated that the Redstone family’s holding company and parent of Paramount, National Amusement, is in talks with creditors. They may need to renegotiate some debt. Creditors are concerned that weaker cash flows increase the risk of debt. As a result, they would want higher compensation for the added risk.
Paramount has serious business risks ahead if cash flows do not strengthen. It already slashed dividends, alienating income investors, to preserve cash. Demand for content is in potential freefall. Consumers would rather preserve their lower disposable cash for food instead of streaming services.
AT&T has similar issues. JP Morgan analyst Philip Cusick warned readers that the firm has more competitive pressure in mobility, thanks to Verizon and T-Mobile. Its business wireline has ongoing pressures.
Any cash flow deceleration would jeopardize AT&T’s dividend yield. It may also strain the balance sheet as it services its debt. The firm’s CFO committed to a $16 billion FCF target. However, the executive also suggested the average revenue per user is falling.
Wait for AT&T to post quarterly results before re-evaluating the firm’s prospects.
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