How Will AT&T's Q2 Results Stack Up Against the Competition? – Market Realist

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AT&T’s second-quarter earnings

AT&T (T) plans to post its second-quarter earnings results on July 24. Before we dive into its second-quarter estimates, though, let’s recap its first-quarter performance compared to estimates.

In the first quarter, AT&T’s adjusted EPS rose 1.2% YoY (year-over-year) to $0.86, which was in line with analysts’ consensus estimate. AT&T’s adjusted net income attributable to shareholders rose from $5.3 billion in the first quarter of 2018 to $6.3 billion in the first quarter of 2019. Its adjusted EBITDA rose 19.0% YoY to $14.8 billion.

In the quarter, AT&T gained 2.7 million net wireless subscribers in the US driven by gains in postpaid smartphone and connected devices. This addition could be significant given that smaller competitors have made much of their ability to attract customers from other wireless carriers. AT&T also gained 80,000 postpaid phone net subscribers in the quarter. You can read more about AT&T’s first-quarter performance in AT&T’s Q1 Earnings Triggered a Sell-Off.

In the second quarter, analysts expect AT&T to post adjusted EPS of $0.89, 2.2% lower than its adjusted EPS in the second quarter of 2018 but 3.5% higher than its adjusted EPS in the first quarter.

In comparison, T-Mobile’s (TMUS) adjusted EPS are expected to rise 5.4% YoY to $0.97 in the second quarter. Sprint (S) is expected to report adjusted EPS of -$0.04 in its first quarter of fiscal 2019, which ended on June 30.

AT&T’s second-quarter revenue

In the first quarter, AT&T posted consolidated total operating revenue of $44.8 billion, a rise of 17.8% YoY. This significant YoY revenue growth was the result of the company’s Time Warner acquisition in mid-June last year. However, AT&T’s revenue missed Wall Street’s consensus estimate by 0.6% due to the lower-than-expected revenue of $8.38 billion in its WarnerMedia segment.

In the second quarter, analysts expect AT&T to post total revenue of $44.9 billion—up 15.1% from $39.0 billion in the second quarter of 2018. Analysts also expect AT&T’s sales to see YoY changes of 7.2% to $183.1 billion in 2019, 0.3% to $183.6 billion in 2020, and -0.4% to $182.9 billion in 2021.

In comparison, T-Mobile’s revenue is expected to rise 5.3% YoY to $11.1 billion in the second quarter. Sprint’s revenue is expected to fall 0.8% YoY to $8.1 billion in the first quarter of fiscal 2019.

AT&T’s US pay-TV subscribers

Analysts expect AT&T to report traditional US pay-TV customer losses in the second quarter. The company continued to face stiff competition from OTT (over-the-top) offerings such as Netflix (NFLX), Amazon Prime Video, and YouTube TV in the period.

In the first quarter, AT&T lost 544,000 traditional US pay-TV customers on a net basis, surpassing analysts’ expectation of 385,000. AT&T’s traditional US pay-TV customer count fell 6.5% YoY to 22.4 million in the quarter.

In the first quarter, Charter Communications (CHTR) and Comcast (CMCSA) lost 145,000 and 121,000 total video subscribers, respectively. Frontier Communications (FTR) also lost video customers. In contrast, Netflix gained 9.6 million subscribers worldwide in the quarter.

Millions of users have already swapped their traditional pay-TV services for OTT services, as OTT video-streaming services directly provide content to consumers over the Internet at lower rates than those associated with satellite or cable connections.

AT&T’s adjusted EBITDA

In the second quarter, analysts expect AT&T to report adjusted EBITDA of $7.7 billion for AT&T Mobility, its combined domestic wireless operation, which could translate to an adjusted EBITDA margin of 44.3% for the quarter—higher than the 44.1% it saw in the second quarter of 2018. AT&T Mobility’s second-quarter adjusted EBITDA is expected to rise 1.4% YoY from $7.6 billion in the second quarter of 2018. Meanwhile, AT&T’s consolidated adjusted EBITDA is expected to rise 13.2% YoY to $15.1 billion.

In the first quarter, AT&T reported combined domestic wireless operations adjusted EBITDA of $7.4 billion compared to $7.3 billion in the first quarter of 2018. The company’s adjusted EBITDA margin expanded to 42.0% in the first quarter from 41.8% in the first quarter of 2018.

In comparison, T-Mobile’s adjusted EBITDA is expected to rise 4.4% YoY to $3.4 billion in the second quarter. Sprint’s consolidated adjusted EBITDA is expected to fall 11.5% YoY to $2.9 billion in the first quarter of fiscal 2019.

Shareholder returns and stock trends

AT&T has delivered a return of 17.5% year-to-date as of July 9. T-Mobile and Sprint have risen 18.1% and 17.5%, respectively. On July 9, AT&T’s closing price was $33.54 per share. The stock is trading 25.1% above its 52-week low of $26.80 per share and 2.4% below its 52-week high of $34.37 per share.

AT&T stock has risen 0.3% in the last five trading days, 3.2% in the trailing-one-month period, and 4.3% in the trailing-12-month period. Analysts’ estimates show that the stock could rise 0.3% over the next 12 months.

Currently, AT&T’s market cap is $246.4 billion. It’s the largest US national wireless carrier in terms of market cap. T-Mobile’s market cap is $67.2 billion, while Sprint’s market cap is $29.2 billion.

Bollinger Band

In the July 9 trading session, AT&T stock closed at $33.54, near its Bollinger Band midrange level of $33.01. This value suggests that its stock isn’t overbought or oversold.

MACD

AT&T’s current 14-day MACD (moving average convergence divergence) is 0.55. T-Mobile’s 14-day MACD is 1.09, while Sprint’s is 0.10. A stock’s MACD marks the difference between its short- and long-term moving averages. AT&T’s positive MACD figure suggests an upward trading trend.

Valuation multiple

Currently, AT&T is trading at a 12-month forward PE ratio of 9.37x. It’s trading at 9.48x analysts’ 2019 adjusted EPS estimate of $3.56 and 9.30x analysts’ 2020 adjusted EPS estimate of $3.63. The company’s adjusted EPS are expected to rise 1.1% in 2019 and 2.0% in 2020. A company’s PE ratio denotes the amount investors are willing to pay per dollar of its EPS.

AT&T is currently trading at a trailing-12-month EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 7.01x. T-Mobile and Sprint are trading at trailing-12-month EV-to-EBITDA multiples of 7.66x and 4.86x, respectively. AT&T is trading at a 12-month forward EV-to-EBITDA multiple of 7.02x. T-Mobile’s and Sprint’s 12-month forward EV-to-EBITDA multiples are 6.91x and 5.27x, respectively.

Analysts’ recommendations

Most analysts maintain “buys” on AT&T stock ahead of its second-quarter earnings results. A total of 48.3% of the 29 analysts covering the stock have given it “buy” ratings, while 44.8% are in favor of “holds,” and 6.9% are in favor of “sells.” On average, analysts have given AT&T a 12-month price target of $33.63, which implies a potential upside of 0.3% from its current price of $33.54.

AT&T’s dividend yield

AT&T remains committed to paying higher dividends despite its high debt levels. In the first quarter, it had returned $3.7 billion to its shareholders in the form of dividends compared to $3.1 billion in the first quarter of 2018. As of July 9, AT&T’s dividend yield was 6.1%.

Moving averages

On July 10, AT&T stock closed the trading day at $33.76. On the downside, its immediate support lies near $33.64, while $33.86 could act as an immediate resistance level on a daily basis.

Based on its closing price on July 10, AT&T stock was trading 2.3% above its 20-day moving average of $33.01, 5.3% above its 50-day moving average of $32.05, and 6.9% above its 100-day moving average of $31.59. T-Mobile was trading 6.7% above its 100-day moving average, while Sprint was trading 12.8% above its 100-day moving average.

Relative strength index

On July 10, AT&T’s 14-day RSI (relative strength index) score was 61, which suggested that its stock was neither overbought nor oversold. T-Mobile’s and Sprint’s 14-day RSI scores were 49 and 51, respectively.

RSI is one of the most widely used technical indicators, and it’s measured on a scale of 0–100. If an RSI figure is below 30, it indicates that a stock may rise soon, as it’s been oversold. An RSI figure of higher than 70 suggests that a stock has been overbought and may fall soon.

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