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Guilfoyle: AT&T Results Leave Traders With a Choice

An eventual cut in dividend would be painful but healthy for future of telecom

AT&T  (T) - Get AT&T Inc. Report has been a lackluster stock for several years and its transformation has not helped the company’s bottom line, Real Money’s Stephen “Sarge” Guilfoyle argues.

Some investors have remained because of its high dividend yield while others were hoping the telecom company’s move into entertainment would materialize into a fruitful endeavor, he wrote in a recent Real Money Pro column.

“For years, there has not been much else to attract investors due to a number of almost incredible blunders made along the way as the firm tried to evolve into something it was not,” Guilfoyle wrote. “The shares bottomed earlier in October as the firm works to unwind that multi-year journey into the world of entertainment, and refocuses on being what it should be... a major player in telecom. This is the story of a major corporation as it comes to a point of inflection.”

Traders in the stock could sell their position, he argues. “Traders can move on to something else,” Guilfoyle wrote. “This is a decision to either invest or not invest.”

The company’s recent third-quarter earnings were mixed as it reported adjusted EPS of $0.87 and GAAP EPS of $0.82, which both beat Wall Street’s estimates. AT&T reported revenue of $39.9 billion, which missed the consensus view and was a contraction of 5.7% compared to last year, reflecting the separation of DirecTV.

One positive factor is that AT&T added a good amount of customers recently - during the past quarter the company added 1.22 million wireless customers, plus 928,000 postpaid phones, compared to its competitor Verizon  (VZ) - Get Verizon Communications Inc. Report which only added 429,000 postpaid phones. Revenue also came from the addition of 249,000 prepaid AT&T phones. AT&T’s operating income rose from $6.1 billion to $7.1 billion because of lower depreciation and amortization expenses.

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“The investment and refocusing on the core business appears to be paying off,” Guilfoyle wrote. “AT&T is definitely a different company than it was, and will continue to evolve into mid-2022. AT&T also seems to be beating Verizon at the game they both play.”

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In May AT&T said it would focus on its core business and divested its WarnerMedia entertainment unit for $43 billion to Discovery (DISCA).

AT&T estimates full year adjusted EPS growth at the “high end of the low to mid single digit (percentage) range, and is on track to land free cash flow on or close to the firm's $26 billion target,” Guilfoyle wrote.

The company also plans to return less free cash flow funds to shareholders and pay down some of its debt load. The dividend yield of 8% that it plans to pay out in November could get cut in the future.

“Even if eventually halved, AT&T will still be a dividend stock,” he wrote. “This will be a negative event for the stock if and when the day comes that AT&T announces a reduced dividend. That will also be a good day for the health of the company, and its ability to better sustain that dividend.”

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