Do 2012 Growth Stories Justify This Telecom's Current Price Multiples?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
AT&T (NYSE: T) recently announced that the FCC has approved its pending acquisition of NextWave Wireless and other pending WCS spectrum acquisitions. The FCC previously approved a joint proposal from AT&T and Sirius XM Radio (SIRI) that permits deployment of mobile broadband service in the WCS band. AT&T is trading at price multiples that are reasonable for cautious investing. The growth stories surrounding its wireless and wireline strategies justify its current price multiples.
Third Quarter Financials
AT&T remains stable at $33.32 per share based upon the announcement of the FCC’s decision. Though the company reported flat consolidated revenue of $31.5 billion in the third quarter compared to the year-earlier period. However, AT&T’s growth engines – wireless and wireline – continued to transform the company’s revenue mix, representing 81% of total revenues and growing 6.4% versus the same quarter in 2011. The company reported growth of 18.3% in wireless data revenues, up more than $1 billion compared to the same quarter in 2011.
AT&T reported third quarter diluted EPS of $0.63 compared to $0.61 diluted EPS for third quarter of 2011. It also reported record cash from operations at $11.5 billion and record free cash flow of $6.5 billion in the quarter. It spent $3.8 billion in stock buybacks, while wireless and wire line continued to remain the growth engines.
Why are AT&T strategies to boost wireless and wireline networks stabilizing revenue?
In wireless, the penetration of usage-based mobile data plan offers mobile consumers unlimited internet access, while 4G LTE speeds up smartphones. In wireline, the company's IP network helps to drive increase in broadband data download, allowing AT&T to increase its free cash flow guidance.
AT&T reported 10% earnings growth in the second quarter, strong revenue and margin gains, and its best-ever wireless margin and churn. Wireless, wire line data, and IT managed services represented 80% of total revenues when excluding advertising solutions, and grew 5.5% versus the same quarter a year ago. AT&T achieved 18.8% growth in wireless data revenues, up $1 billion versus the year-earlier quarter.
“We executed well across the business and posted another strong quarter with growing revenue, expanding margins, and double-digit earnings growth,” said Randall Stephenson, AT&T’s Chairman and Chief Executive Officer. “Our mobile internet leadership continues, with solid gains in Smartphone and tablets, plus our wireless margins have never been better.”
In the last year, AT&T offered personalized videos to help explain wireless bills. The company deployed 4G LTE network to cities such as New Haven and Harford. AT&T partnered with IBM (IBM) to create breakthrough global cloud services for business and debuted Windows 8 tablets for the holiday shopping season. It then encouraged the U.S. Marine Corps to select AT&T government solutions for trusted handheld contracts.
The FCC’s approval of the purchase of NextWave means the long era of dispute and uncertainty surrounding the WCS band is finally over. “With the order released this week, AT&T will be able to complete an acquisition that will give it a path to robust commercial LTE deployment in the WCS band,” said John Marsh, an AT&T’s Vice President. “Repositioning the WCS band for LTE deployment is a significant accomplishment that will spur aggressive investment by AT&T.”
AT&T implemented a lot of wireless and wire line strategies to improve its network in the last year. It is also understandable that the WCS spectrum is important for the growth of AT&T’s wireless network, and gaining a head start is always wise for the company. Relating AT&T’s wire line and wireless strategies to its financial statements, it is clear that the company has been improved when compared to the previous year. And in addition, its cash generation continues to be strong, allowing it to invest aggressively and return substantial value to shareholders through dividend and share repurchases.
Let’s see how AT&T is performing against its primary competitors. With gross margins of 0.55% and earnings per share (EPS) of 0.76, AT&T is ahead of Sprint (NYSE: S) at 0.41% and -1.44, respectively. It is also ahead of Frontier (NASDAQ: FTR), which has EPS of 0.15. Though Verizon (NYSE: VZ) has a gross margin of 0.60% and EPS of 0.80, it is clear that AT&T is only slightly behind. AT&T has a higher net income at $4.44 billion, compared to $3.08 billion for Verizon and -$4.31 billion for Sprint.
Looking at the successive strategies to boost wireless and wireline revenues and improving margins, I can say that AT&T is a good buy at the moment.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!