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AT&T $T bears are caught in a bear trap
Whether it's here on CommonStock, on Twitter, or in discussions with people in the real world, there is a strong bearish sentiment on $T. After looking through the Q2 2023 earnings call presentation and transcript, I believe that AT&T has already set up a bear trap.

Let's first talk about the lead cable issue. The WSJ released a report earlier this month describing how AT&T and $VZ used lead cables and those cables poisoned ground water wells and habitats. Many were hurt by this and it's expected that the lawsuits relating to the issue would be large. Some will say that the scale of the issue is comparable to the California wildfires caused by $PCG equipment failures.

In the conference call, the CEO of AT&T $T said that the issues relating to it are immaterial to the business. This is the exact quote he said in the image below (credit: Koyfin).

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Also, the lead cable issue affects less than 10% of the cable infrastructure that they have.

Outside of the lead cable issues, the bears are forgetting that telecom providers are taking broadband customers away from cable companies thanks to 5G. In their Q2 2023 earnings presentation, management presents this growth in their Fiber division.

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I acknowledge that in the big picture, AT&T isn't a growth stock. The business is mature. While revenues have barely grown on a YoY basis, the business has grown its free cash flow by 200% within the same time period. This destroys the bearish narative that AT&T will have trouble paying down its debt and cut its dividend. If they were struggling to pay dividends to shareholders, the free cash flow of the business wouldn't triple.

The cause of the massive improvement in free cash flow are the cost reduction measures that the company has embarked from 2020. After reporting their earnings recently, management is embarking on a new wave of cost cutting initiatives and is targeting $2 billion in cost reductions. As the company cuts down on costs further, the company will become more profitable and will be able to accelerate the reduction of debt on their balance sheets.

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Based on the results from the Q2 2023 earnings call, I am optimistic that AT&T $T is headed in the right direction. The high dividend yield, improving fundamentals, and the stability aspect of the business make the stock attractive. Outside of cost cutting and learning that the lead cable issue was an overreaction, the ramp up of 5G service will lead to more revenues on the main telephone business. The new 5G internet + fiber broadband services are making AT&T a viable competitor to $CMCSA and $CHTR. Once AT&T does more advertising for those services, the cable companies will start complaining that the telecom companies are dominating the broadband industry.

If the bears are looking for a new target, I suggest targeting the cable companies like Comcast and Charter. The telecom providers will soon push massive marketing campaigns for their phone + internet + streaming bundles and consumers will stop consuming services from cable companies. The money in the cable industry will drain fast in the near future and these cable companies will turn into actual dinosaurs.
Fierce Network
AT&T eyes billions in cost-cutting initiative
AT&T aims to generate billions of dollars in savings over the next three years through a new cost-cutting initiative that focuses on 10 areas of the business, according to COO John Stankey. | AT&T aims to generate billions of dollars in savings over the next three years through a new cost-cutting initiative that focuses on 10 areas of the business, according to COO John Stankey.

Neil's avatar
Excellent write up! I went with $VZ after the lead cables hit piece. The hate these two are getting is understandable after years of underperformance (to say the least), BUT things are getting better in my opinion and the price is fair,
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