AT&T (T) spiked to a multi-year low last week when an executive warned that revenue from its mobile division would weaken.
Income investors who bought T stock would have lost almost 20%. Those who are betting the stock is close to bottoming could ride the stock betting on a rebound. The stock trades at a manageable 1.1 times debt/equity and its net debt is around three times EBITDA.
Besides its high yield, AT&T plans to spin-off HBO next year. Investors should value the legacy AT&T business and the spin-off division higher than the current stock price. Markets are discounting HBO because investors get stock instead of dividend income in the next year.
AT&T sold 70% of its stake in DirectTV and will use the funds to cut its debt. It may also buy back stock to lower its float.
Risk
AT&T’s management remains a risk for the company’s prospects. The firm’s historical acquisitions ruined shareholder value. Looking ahead, the HBO spinoff will separate the growing streaming business from the core telecom business.
AT&T faces competition in the mobile market as Verizon (VZ) and T-Mobile (TMUS) take their customers. This pressure is nothing new.
AT&T is at a bargain in the high single-digit forward P/E. Consider this stock at current levels.
