AT&T INC. $36(New York symbol T; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 5.2 billion; Market cap: $187.2 billion; Price-to-sales ratio: 1.4; Dividend yield: 5.2%; TSINetwork Rating: Average; www.att.com) is the largest wireless provider in the U.S., with 121.8 million subscribers. Wireless supplies 55% of its revenue and 75% of its earnings.
The remaining 45% of revenue and 25% of earnings comes from the company’s wireline division, which sells phone services, television packages and highspeed Internet access to 34.2 million customers.
AT&T’s revenue rose 6.5%, from $124.4 billion in 2010 to $132.4 billion in 2014. Earnings fell 3.9%, from $2.29 a share (or a total of $13.6 billion) in 2010 to $2.20 a share (or $13.1 billion) in 2011, but they recovered to $2.33 a share (or $13.7 billion) in 2012.
Overall earnings fell to $13.5 billion in 2013, but per-share profits rose to $2.50 on fewer shares outstanding. Lower demand for traditional phone service cut earnings to $13.1 billion in 2014, but earnings per share improved to $2.51.
The company should soon complete its purchase of DirecTV (Nasdaq symbol DTV), which has 20.4 million satellite TV customers in the U.S. and 19.5 million in Latin America. DirecTV also owns regional sports networks and other cable channels. AT&T will pay $48.5 billion (70% stock and 30% cash).
Savings target rises by 56%
DirecTV will help AT&T negotiate better deals for content from sports leagues and TV networks. What’s more, combining broadcasting and other facilities should let the company cut $2.5 billion from its annual costs by the end of the third year, up from its earlier estimate of $1.6 billion.
AT&T’s sound balance sheet will help it pay for this purchase. As of March 31, 2015, its long-term debt was $88.3 billion, which is a manageable 47% of its market cap. It also held cash of $4.4 billion.
The company’s earnings will probably rise slightly, to $2.52 a share, in 2015. The stock trades at just 14.3 times that forecast. The $1.88 dividend yields 5.2%.
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