Summary
AT&T closed the Friends deal, which incurred no cost, with Netflix for $100 million. The Friends deal shows AT&T's bargain power.
AT&T will increase revenues and EBITDA due to the merger synergy, launches of 5G mobile services, and WarnerMedia streaming services.
The merger synergy will increase EBITDA by reducing SG&A expenses and cost of goods sold.
AT&T (T) has updated a positive 2019 outlook recently. JPMorgan and Cowenupgraded AT&T after the recent update. AT&T expects $26 billion FCF and 2.5x net debt to EBITDA ratio by the end of 2019. If AT&T meets the target, the stock price would appreciate by more than 10% in 2019. AT&T's projection would be reasonable for the following reasons.
Merger Synergy
AT&T expects total synergy of $2.5 billion due to the WarnerMedia merger by 2021; $1.5 billion for cost synergy and $1 billion for revenue synergy. The total synergy will be $700 million for 2019, $2 billion for 2020, and $2.5 billion for 2021. The merger would enable AT&T to cut expenses by restructuring the newly merged company and reducing workforce that is currently comprised of about 270,000 full-time employees. For this reason, AT&T's SG&A expenses would decrease, and EBITDA would increase in future years. $1.5 billion cost reduction and additional $1 billion revenues are huge improvements for AT&T over the future years. Its EBITDA would increase by $2.5 billion per each year on and after 2021. AT&T would use the extra cash to pay off the debts.
