Pending WarnerMedia-Discovery deal, AT&T outlines future growth strategy

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In anticipation of the completion of WarnerMedia’s pending deal with Discovery, Inc. (DISCA) in the next quarter, AT&T Inc. (NYSE:T) presented its updated strategy and financial outlook, including its operational and financial expectations through 2023.

AT&T is the world’s largest telecommunications company and the largest mobile phone service provider in the United States.

On Friday, Discovery shareholders approved the WarnerMedia merger. The massive deal had already won approvals from the US Department of Justice and the European Commission.

AT&T’s Strategic Plan

In an effort to deliver high-quality broadband in more places for businesses and consumers, AT&T intends to dramatically expand its fiber footprint to more than 30 million locations. Additionally, the company aims to enhance the 5G network by integrating 120 MHz of midband spectrum, including more than 200 million people by the end of 2023. This will complement the existing footprint of more than 255 million people in more than 16,000 localities.

Continuing its transformation and cost structure optimization initiatives, the company expects to save approximately $6 billion by the end of 2023.

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

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

Expectations 2022 and 2023

AT&T maintained guidance for 2022 and launched 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 wireless revenue growth and 6% or more broadband revenue growth. Adjusted EBITDA is expected to be between $41 billion and $42 billion, while Adjusted EPS is expected to be between $2.42 and $2.46.

For 2023, low single digit revenue growth is expected to continue due to low single digit wireless revenue growth and mid to high single digit broadband revenue growth. Adjusted EBITDA is expected to be between $43.5 billion and $44.5 billion, while Adjusted EPS is expected to be between $2.50 and $2.60. Free cash flow is expected in the $20 billion range.

Official comments

AT&T CEO John Stankey said, “We plan to increase investment in our key growth areas: 5G and fiber. And at the same time, we will continue to focus on growing relationships with our customers, continually improving our execution to enhance the customer experience, and deliver growth and returns for our shareholders.

The Taking of Wall Street

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

The rest of the street is cautiously bullish on 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, AT&T’s website saw declines of 16.08% and 13.97% in estimated overall visits in January and February, respectively, on a sequential basis. In addition, the website’s year-to-date growth, compared to the website’s year-to-date growth, was down 14.17%. This, in turn, indicates that the company’s revenue and profitability could disappoint going forward, or at least compared to the busy holiday season last quarter.

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