After selling its 70% stake in DirecTV in a cash deal, AT&T is finally out of the media business. During the last decade, the company has spent billions of dollars in a bid to become a media powerhouse. The $48.5 billion acquisition of DirecTV in 2015 and over $100 billion spent on acquiring Time Warner resulted in a bloated business that became too heavy for its own good.
Before the business collapsed under its weight, the company slowly started unwinding its mistakes. That seems to have culminated with the sale of its DirecTV stake. The capital freed up as a result will go a long way in helping the company shift the focus back to its core business as well as pay back debt.
At its core, AT&T is a wireless services company. It has over 100 million wireless subscribers, holding a significant market share in the US. It has invested heavily in 5G infrastructure and has expanded its fiber network to broaden its services. It is a critical company when it comes to helping businesses with their digital transformation. Its end clients use the company’s fixed wireless and edge computing technologies to improve their efficiency and productivity.
By shedding its loss-making media business, the company can now shift its focus to these core technologies. It expects to receive the first $2 billion next year, which will probably go straight to improving its fiber network. In total, the company expects $7.6 billion to be paid out in stages till 2029.
The full impact of this cash infusion on the income statement is not yet clear. However, the company will announce its quarterly result on the 23rd of October, where the guidance will give some hints on where the money is expected to go.
Analysts estimate a $500 million impact on the company’s EBITDA. AT&T has been struggling with debt in the last few years with a Net Debt per EBITDA of 2.85, higher than its competitor Verizon’s 2.52. The DirecTV sale should help the company deleverage in the coming years.
AT&T finally seems to be on the right track after years of underperformance. Historically, the stock has offered a healthy dividend yield. Recent turmoil has raised questions about the sustainability of its dividends but investors should feel more confident now that a lot of things seem to be going in the right direction for the company. Positive investor sentiment should continue to drive the price upwards in the coming days.
T is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 71 hedge fund portfolios held T at the end of the second quarter which was 70 in the previous quarter. While we acknowledge the potential of T as a leading 5G investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as T but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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