After years of uncertainty and lagging behind the market, America’s largest telecom, AT&T (NYSE: T ), appears to have developed a formula for success.
Over the past couple of months, the debt-ridden telecom giant has demonstrated that its recovery plan is working. The Texas-based company is reviewing its portfolio of assets, which could potentially generate attractive returns.
Last month, AT&T decided to divest its loss-making DirecTV division through a deal with private equity firm TPG. The result will be a joint venture under which TPG will operate DirecTV and AT&T’s other Pay TV businesses.
The deal will bring the company $ 7.6 billion in cash ($ 5.8 billion of which DirecTV will raise in loans). As such, AT&T is on its way to becoming a small telecommunications and media company with a clear focus on wireless and streaming.
Her own streaming service HBO Max is also taking shape; previously, there were doubts about where it could be in a market dominated by giants such as Netflix (NASDAQ: NFLX ) and Disney (NYSE: DIS ). AT&T intends to launch a new tariff in June that will include advertising; with this move, the company hopes to meet the deferred demand for HBO Max’s reach.
70 million subscribers
AT&T plans to expand HBO Max to 60 international markets this year, expanding its presence. The idea is to promote HBO Max and HBO in parallel, which will bring the total number of subscribers to 67-70 million by the end of 2021.
In December, the Warner Bros. surprised Hollywood with the decision to release all of its 2021 films in theaters and on the streaming service at the same time.
These efforts are impressive, but remember that AT&T has been a bad investment lately; In just five years, the company’s capitalization fell by more than 20%. During this period, the return on investment in the S&P 500 benchmark was 90%.
AT&T – weekly timeframeAT&T – weekly timeframe
New CEO John Stankey believes that AT&T’s bet on HBO will pay off in the long term, and investors should believe in the company’s “recovery”. Analysts at Raymond James upgraded the stock to above market with a target of $ 32. They explain their decision by the prospects of improving operating indicators in the next 12 months, which makes the stock a profitable investment.
The accompanying note notes:
” HBO Max has finally arrived on the dominant streaming hardware platforms, and we expect significant subscriber growth, which should have a positive response from the company’s stock.”
Over the past month, AT&T shares are up about 9% to close at $ 30.57 on Monday. The company pays out $ 0.52 per share on a quarterly basis, offering an annualized return of 7%.
Summarize
The success in selling assets and growing the streaming service subscriber base demonstrates the success of Stankey’s strategy, which will benefit AT&T shareholders as well. However, in our view, the company has a very long road to recovery, and we should not expect huge gains from the stock after the recent rally.
Nevertheless, AT&T remains an excellent candidate for inclusion in dividend portfolios