Pending WarnerMedia-Discovery Deal, AT&T Outlines Future Growth Strategy

In anticipation of the completion of the pending WarnerMedia deal with Discovery, Inc. (DISCA) in the next quarter, AT&T Inc. (NYSE: T) has outlined its updated strategy and financial outlook, including operational and financial expectations through 2023.

AT&T is the world’s largest telecommunications company and the largest provider of mobile telephone services in the U.S. 

On Friday, Discovery’s shareholders approved the WarnerMedia merger. The massive deal had already obtained approvals from the U.S. Department of Justice and the European Commission. 

AT&T’s Strategic Plan 

With the aim of providing high-quality broadband in more places for businesses and consumers, AT&T intends to dramatically increase its fiber footprint to more than 30 million locations. Additionally, the company targets to improve the 5G network by integrating 120 MHz of mid-band spectrum, including over 200 million people by the end of 2023. This will complement the existing footprint of over 255 million individuals in over 16,000 localities.

Moving forward with its transformation initiatives and optimizing cost structure, the company expects to save about $6 billion by the end of 2023. 

Furthermore, in both 2022 and 2023, AT&T plans to make investments worth around $24 billion to implement 5G and fiber technologies. Thereafter, the investment is expected to slow down closer to $20 billion. 

Upon the closing of the WarnerMedia-Discovery transaction, AT&T expects to pay more than $8 billion in cash in the form of annual total dividends to its shareholders, representing a payout of about 40%. 

2022 & 2023 Expectations 

AT&T maintained its 2022 guidance and initiated for 2023, excluding WarnerMedia and Xandr. 

For 2022, the company expects low single-digit growth in total revenue on the back of 3% or more growth in wireless service revenues and 6% or further growth in broadband revenue. Adjusted EBITDA is forecast in the range of $41 billion to $42 billion, while adjusted EPS is expected to range between $2.42 and $2.46. 

For 2023, low single-digit revenue growth is likely to continue on the back of low single-digit growth in wireless service revenues and growth in the mid-to-high single-digit range in broadband revenue. Adjusted EBITDA to range between $43.5 billion and $44.5 billion, while adjusted EPS is anticipated in the range of $2.50 and $2.60. Free cash flow is expected in the $20 billion range. 

Official Comments

AT&T CEO John Stankey commented, “We plan to ramp up investment in our key areas of growth — 5G and fiber. And at the same time, we will retain our focus on growing customer relationships, continuously improve our execution to enhance the customer experience and deliver growth and returns for our shareholders.” 

Wall Street’s Take  

Recently, Morgan Stanley analyst Simon Flannery reiterated a Buy rating and a price target of $28 on AT&T. 

The rest of the Street is cautiously optimistic about the stock, which has a Moderate Buy consensus rating based on eight Buys, six Holds, and one Sell, and an average AT&T price target of $29.43.

Estimated Monthly Visits   

TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (NYSE: SEMR), offers insight into AT&T’s performance. 

According to the tool, the AT&T website recorded 16.08% and 13.97% decreases in global estimated visits in January and February, respectively, on a sequential basis. Also, year-to-date website growth, compared to year-to-date website growth in the previous year, came in at a decline of 14.17%. This, in turn, indicates that the company’s revenues and profitability might disappoint going forward, or at least in comparison to the busy holiday season of the past quarter.

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