Considering an Investment in AT&T (T)? Read This!

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:

2020-02-20 2021-02-25 2022-02-16 2023-02-13
Revenue (MM) $181,193 $143,050 $134,038 $120,741
Gross Margins 53.6% 54.1% 54.9% 57.9%
Operating Margins 16.2% 16.8% 19.5% 19.0%
Net Margins 7.67% -3.62% 14.98% -7.06%
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
EPS Growth n/a -139.68% 468.0% -142.39%
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
Current Ratio 0.79 0.82 1.61 0.59
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.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.