Summary
- We remain bullish on AT&T, however, we have been criticized for not adding enough balance.
- Our revenue and cash flow outlook which backs up our belief in the dividend safety could be impacted if HBO Max flops.
- A $5 billion revenue boost in the next few years is projected, but could be better or worse than expected.
- This idea was discussed in more depth with members of my private investing community, BAD BEAT Investing. Get started today »
We have covered AT&T (T) many times over the years. The telecommunications and media giant has long been a recommendation from our firm and was a top value pick for 2019. We recently had another prediction that the dividend will be raised by a penny per quarter to $0.52 (or $2.08 annualized) for 2020. With the recent push high in the stock driven in part by improving fundamentals and in part by bullishness surrounding the involvement of Elliot Management, we now turn to the future performance of AT&T. With that, we recently discussed how we saw improving/innovative mobility plans, slowing declines in DirecTV and video subs, as well as a push from HBO max driving future revenues and cash flows. However, we received a few comments and questions regarding risks and downsides. So what if HBO Max flops?
Why we see revenue and cash flow increasing
We want to say that we are still bullish, that has not changed. But for the purposes of balance, we want to elaborate a bit. The first thing that we want to state is that management knows its business best, and we have to take that under advisement. With AT&T, management's own projections of performance are generally close to actual performance and we see no reason why this would change, but HBO Max is a wildcard. But before considering this, we want to point out that in the most recent quarterly call, CEO Randall Stephenson stated:
...we remain on target to meet every single objective for the year. We said leverage would be around 2.5 times by year-end, and we're on track to hit that target. We told you that full year EPS would grow in the low single digits, and we're checking that box.
We said we'd generate $26 billion of free cash flow, and now we're tracking to $28 billion. We...remain very active on the portfolio front, evaluating and executing opportunities to monetize $6 billion to $8 billion in non-core assets, and we have. Our current forecast is to realize $14 billion by year-end.
This is a confident outlook for the remainder of the year. With 2020 approaching, we obviously are expecting another dividend increase, as we stated previously. John Stephens, CFO had added that the cash flow looked great:
...cash flows are on a record pace for the year..free cash flow was $6.2 billion in the quarter and nearly $21 billion year-to-date. This puts us firmly on track to reach our full year target of free cash flow in the $28 billion range, both from an ongoing operations and including about $2 billion from a full year of applying our working capital approach to WarnerMedia's assets.
To get to these figures, we need to see a boost to revenue. One way to bring in direct cash flow is with further asset sales. AT&T has monetized more than $30 billion in non-strategic assets over the last few years. You should expect continued sales.
