AT&T in the age of COVID-19: A strong wireless business, and a bunch of question marks

This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published on April 9.

Wireless customers are unlikely to cancel their cellphone plans even as the COVID-19 outbreak shakes the global economy, but AT&T Inc. has a few other things to worry about.


spent the past few years building a more diversified business full of media and video assets, but those areas seem far more exposed to the ongoing pandemic than the company’s stickier wireless business. Following its 2018 Time Warner acquisition, AT&T now houses the Warner Bros. entertainment studio; TV networks like CNN, TNT and TBS; and premium video brand HBO.

The movie business is currently in limbo as theater closures have prompted the company to delay film releases. In TV, news network CNN may be benefiting from a clamoring for information about the crisis, but TNT and TBS are reeling from a lack of live sports programming including the cancellation of March Madness. There’s also general concern about a weak ad market due to depressed consumer spending.

The company is preparing for the May launch of its $14.99-a-month HBO Max subscription service that will bundle programming from HBO, Warner Bros. and other internal content hubs. While HBO Max is likely to still debut on time, there was hope that AT&T could use the service to entice its wireless and broadband subscribers to pay up for premium plans by offering Max as an added perk. That deal might seem less enticing in a weaker economic climate.

On the video side, AT&T was already shedding subscribers for its DirecTV and U-verse offerings before the outbreak began. Some fear the economic uncertainty brought on by COVID-19 could worsen the cord-cutting trend, especially without any live sports to keep customers attached.

AT&T still gets a cushion from its wireless business, however. The company generated about 40% of its operating revenue last year from its mobility segment, and wireless services tend to be sticky in recessions, even if consumers are less likely than usual to upgrade their phones or pay up for fancier plans. AT&T also offers home-internet service, another service that should be relatively resilient as consumers adjust to extended periods of time at home.

What the numbers are saying

Revenue: Analysts surveyed by FactSet expected $44.5 billion in first-quarter revenue for AT&T as of the end of March, compared with a consensus forecast of $44.98 billion in late December. For the full year, analysts modeled $180.8 billion as of the end of March, down from a prior estimate of $182.02 billion.

Earnings: Analysts modeled 86 cents a share in earnings as of the end of March, down from their late-December forecast of 88 cents. For the full year, analysts were calling for $3.54 a share at the end of the first quarter, below their consensus outlook of $3.60 at the end of 2019.

Stock movement: AT&T shares dropped 25% in the first quarter, compared with a 20% decline for the S&P 500

in that span. Of the 29 analysts tracked by FactSet who cover the stock, nine rate the stock a buy, 19 rate it a hold, and one rates it a sell, with an average price target of $36.53 as of April 9.

What the company is saying

April 7: The company provided an update on its financial position in a press release, citing its “strong balance sheet” and “attractive liquidity.” The company also announced a $5.5 billion term-loan agreement. AT&T expects its business lines to still provide “cash from operations that will support network investments, dividend payments and debt retirement” as well as other business investments, per the release.

March 20: AT&T canceled a previously planned $4 billion accelerated-share-repurchase plan “to maintain flexibility” and focus on investments in the business, including its 5G network. The company also warned in a filing that the effects of COVID-19 on its business “could be material” but that it was too soon to estimate the magnitude of the impact.

What analysts are saying

• “While no company in our coverage universe is immune to the uncertain macro environment that awaits, AT&T’s diversified business including WarnerMedia (content/advertising) creates incremental uncertainty relative to more simplistic companies such as Verizon.

” – Cowen & Co. analyst Colby Synesael, who downgraded the stock to market perform from outperform and lowered his price target to $37 from $43 in a March 23 note to clients. He worries that the COVID-19 outbreak will make it hard for the company to achieve its medium-year targets.

• “While we believe [AT&T’s] dividend yield could prove attractive to some, we expect revenue uncertainties to remain a significant overhang.” – Baird analyst William Power, who downgraded shares to neutral from outperform and cut his price target to $33 from $41 in a March 23 research note. The shares recently yielded upward of 7%.

• “All of AT&T’s businesses, save mobility, are highly cyclical,” meaning the company could see a “steep” drop in consolidated earnings before interest, taxes, depreciation, and amortization. — MoffettNathanson analyst Craig Moffett, who argued that the company’s “dividend could indeed be at risk, particularly in a long recession” and rates AT&T shares at sell with a $23 target price.

• “Advertising spending will likely prove a challenge for AT&T given the cancellation of all major sporting events for at least the foreseeable future.” – Instinet analyst Jeffrey Kvaal, who maintained a buy rating on the stock but trimmed his price target to $39 from $44 in a March 30 note. Kvaal expects that the company will be able to resume share buybacks by the first quarter of 2021.

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