Global Beta Advisors’ Company Profile of AT&T Inc. (“T”)

by Justin Lowry, President & CIO, Global Beta Advisors, LLC

We believe AT&T is one of the more interesting stocks in the S&P 500 right now, particularly as it has recently announced its intention to shed much of its media and gaming businesses; such as Warner Media, TMZ Productions, and Playdemic. The goal with these divestures is to clean up its balance sheet and focus on its core competency in telecommunication in the race to build out the most comprehensive 5G network. 5G adoption around the world is expected to grow exponentially over the next 5 years. The following is a chart compiled by Ericson Mobility that illustrates expected growth in 5G:

Global 5G Adoption to Hit One Billion in 2022
Forecast of 5G smartphone subscriptions by region (in millions)

Forecast of June 2021.
Source: Ericsson Mobility Report
Chart from Statista



AT&T Monthly Dividend Yield

ATT Dividend Yield Chart

Source: FactSet Research Systems, from 09/30/16 to 08/31/21


We believe that refocusing on its legacy business will not only align AT&T with better revenue growth potential but also create a healthier balance sheet to support their dividend. There’s still a strong likelihood that AT&T does cut its dividend as a part of their cost savings initiative, but with a yield over 7% as of 08/31/21, even a 20% cut in its dividend would still leave shareholders with a dividend yield north of 5%. A yield of around 5% is around its 5-year average. The previous chart illustrates the monthly dividend yield of AT&T.

In our assessment, the fact that AT&T could potentially cut its dividend by 20% and still maintain a dividend yield around its 5-year average speaks to how cheap the company is right now. When you couple how nominally cheap it is by these standards with the aforementioned restructuring of the firm, we believe AT&T provides an opportunity for both income and growth. In addition to how cheap the firm looks on the basis of its dividend yield, we believe its price-to-sales ratio is also indicating relative value. As of 08/31/21, its price-to-sales ratio is below its 5-year average. When you consider that many companies in the S&P 500 Index over the same span have price-to-sales ratios above their 5-year average, we believe this further demonstrates how attractive the company is. The next chart illustrates the monthly price-to-sales ratio of AT&T.


AT&T Monthly Price-to-Sales-Ratio

Source: FactSet Research Systems, from 09/30/16 to 08/31/21


As you can see, over the past 5 years, AT&T has hovered between 1.2 and 1.4 times its 12-month trailing sales. As of 08/31, it is trading at 1.12 times sales. Again, we believe this presents intriguing value, especially in a market, as defined by the S&P 500 index, that has observed lofty valuations.

In summary, we believe that the cost cutting initiatives by virtue of exiting some of its business ventures with less growth opportunity will not only clean up AT&T’s balance sheet to fortify its dividend but also allow management to focus on its 5G presence, which based on the aforementioned research, presents strong growth opportunities over the next 5 years.

Price-to-sales ratio is measured by taking the market capitalization of the company and dividing it into its 12-month trailing sales.

The S&P 500 Index is a composition of 500 of the leading large cap companies and covers approximately 80% of available market capitalization.

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