Today we're going to take a closer look at large-cap Telecommunications company AT&T, whose shares are currently trading at $14.27. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
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 -12.2 and a P/B ratio of 1.0.
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 -14.02. 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.
