We've been asking ourselves recently if the market has placed a fair valuation on AT&T. Let's dive into some of the fundamental values of this large-cap Telecommunications company to determine if there might be an opportunity here for value-minded investors.
AT&T Has an Attractive P/B Ratio but a Worrisome P/E Ratio:
AT&T Inc. provides telecommunications and technology services worldwide. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, AT&T has a trailing 12 month P/E ratio of -12.0 and a P/B ratio of 0.98.
When we divide AT&T's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -11.41. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
|Net Income (MM)||$13,903||-$5,176||$20,081||-$8,524|
|Net Interest Expense (MM)||-$8,422||-$7,727||-$6,716||-$6,108|
|Depreciation & Amort. (MM)||-$28,217||-$22,523||-$17,852||-$18,021|
|Earnings Per Share||$1.89||-$0.75||$2.76||-$1.17|
|Diluted Shares (MM)||7,348||7,183||7,204||7,149|
|Free Cash Flow (MM)||$63,619||$49,702||$45,579||$55,239|
|Capital Expenditures (MM)||-$14,951||-$12,218||-$8,409||-$19,427|
|Net Current Assets (MM)||-$294,974||-$294,513||-$196,999||-$263,288|
|Long Term Debt (MM)||$151,309||$153,775||$151,011||$128,423|
|Net Debt / EBITDA||3.21||6.17||3.98||11.18|
AT&T has slimmer gross margins than its peers, declining EPS growth, and a highly leveraged balance sheet. On the other hand, the company benefits from a steady stream of strong cash flows and average operating margins with a stable trend. Furthermore, AT&T has declining revenues and increasing reinvestment in the business.