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AT&T CEO Discusses State of Affairs, Addresses Shareholders

Zacks Equity Research

Speaking at the recently held Goldman Sachs Communacopia Conference in New York, AT&T Inc.’s T chairman and CEO, Randall Stephenson, shared his views on the overall business. He discussed the company’s strategy, including capital allocation and progress against 2019 priorities, and expressed his anticipation of growth in the third quarter and beyond.

Going by the statement, AT&T predicts wireless service revenue growth to continue in the second half of 2019. Management believes that the company will achieve its goal of full-year Entertainment Group EBITDA stability.

Stephenson said that the telecom and media giant continues to emphasize on WarnerMedia to be more competitive in an industry that is being reshaped by consolidation and technology. As WarnerMedia focuses on the launch of HBO Max in Spring 2020, AT&T expects to accelerate investment and develop new content.

Moving on, the company’s FirstNet build was already nine months ahead of schedule at the end of the second quarter, and it expects to reach 70% Band 14 coverage by the end of 2019. It has 5G mmWave in parts of 21 cities at present and aims to be in certain areas of 29 cities by the year end, with nationwide 5G coverage using sub-6 GHz spectrum by the first half of 2020.

Stephenson stated that AT&T intends to take advantage of two trends — growth in time spent for viewing premium content, and increase in demand for connectivity and bandwidth. The combination of WarnerMedia’s huge ad inventory with the data provided by AT&T’s large-scale networks offers a significant additional value opportunity.

CEO reiterated that AT&T remains confident in its ability to reduce its net debt-to-adjusted EBITDA ratio to the 2.5 range by the end of 2019. In fact, the company paid down $9 billion in net debt in the first half of 2019 and has reduced net debt by $18 billion since it closed the Time Warner acquisition. Remarkably, its progress against this objective gave the company confidence to increase its full-year free cash flow target to $28 billion.

In order to meet its de-leveraging goal, AT&T plans to use free cash flow after dividends and continue its monetization initiatives, including both asset sales and working capital initiatives. Stephenson added that investors should expect that share buybacks will be added to the mix of capital allocation approach. Although AT&T did not provide guidance on the amount of share buybacks, it is considered to be a logical move at a time when the cash cost of debt is at historically low level and significantly below the cash cost of equity.

Driven by strong execution of operational strategies, the stock has added 30.2% compared with the industry’s growth of 16.9% in the year-to-date period.

AT&T currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Verizon Communications Inc. VZ, T-Mobile US, Inc. TMUS and Telenav, Inc. TNAV, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Verizon surpassed earnings estimates in each of the trailing four quarters, the average surprise being 2.6%.

T-Mobile surpassed earnings estimates in each of the trailing four quarters, the average surprise being 17.9%.

Telenav surpassed earnings estimates twice in the trailing four quarters, the average positive surprise being 12%.

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