AT&T (T) Shares Details on Cost Synergies of Proposed DirecTV Acquisition

NEW YORK (TheStreet) -- AT&T (T) has divulged details on its proposed acquisition of DirecTV  (DTV) in a SEC filing Wednesday. The telecom said cost synergies will exceed $1.6 billion three years after closing, namely involving savings in programming costs, operational efficiencies and reductions in redundant broadcast infrastructure. Content costs currently account for 60% of subscriber video revenues. 

"With the scale this transaction provides, we estimate AT&T's U-verse content costs after the completion of the transaction will be reduced by approximately 20% or more as compared with our forecasted standalone content costs," the company said in its 8-K filing.

In mid-May, AT&T confirmed its stock-and-cash deal for the satellite TV provider, an acquisition worth $95 a share, or just under $50 billion. Federal regulators have yet to approve the merger.

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TheStreet Ratings team rates AT&T INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AT&T INC (T) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • T's revenue growth has slightly outpaced the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has slightly increased to $8,799.00 million or 7.31% when compared to the same quarter last year. In addition, AT&T INC has also modestly surpassed the industry average cash flow growth rate of 1.40%.
  • The debt-to-equity ratio is somewhat low, currently at 0.88, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, AT&T INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
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