AT&T: Not a Fun Game – AT & T Inc. (NYSE: T)

My constant message on AT & T (T) has been that stocks will fight to rally until today's management can prove that the large wireless and media conglomerate can be handled. Q1 & 39; 19 only results further from these fears when the company struggles to create solid results from the acquired assets, and limited information is provided on debt plans beyond 2019. The stock should trade closer to $ 40, but AT & T is trading down to $ 30 on

Image Source: AT&T Website

Struggling Merger Assets

Shareholders do not like it, but my message will continue to hammer home the lack of success AT & T has had with DirecTV and Time Warner assets. All the company has done is that the former DirecTV business becomes a marginal story, rather than the promised revenue generating bundle of wireless.

For video subscriptions, AT&T stops showing metric data via charts since quarterly issues have become so bad. In Q1, the DirecTV division lost 627,000 subs, and the net addition change was an incredible 752,000 from the last quarter.

] Rich Greenfield on Twitter

Again, Verizon Communications ] (VZ) has benefited greatly from a shift in focus back to wireless. The market is not as focused on its video business, nor did they make a major acquisition that now bleeds subs.

In addition, the Time Warner business will already be an absolute failure, if not for the strong theatrical releases from Warner Bros. Both the HBO and Turner segments already see revenue decreasing when a leading streaming service such as HBO will increase revenue closer to 20% + netflix (NFLX).

Source: AT & T Q1 & 1939 presentation

Again, the combination with a wireless giant would produce bundling opportunities for revenue generation. The goal was not to crop the money-losing customers.

Both the Entertainment Group and WarnerMedia had the largest absolute changes in EBITDA for the quarter. The ability to eliminate the cost of these operations has given bottom line results despite weak top lines and big future issues.

] Source: AT&T Q1 & 1939 presentation

Large debt reductions, however. ..

The management has obviously been told about debt reductions that are crucial for keeping their jobs, but they have not gone far from making final statements about plans beyond 2019.

AT & T largely failed to present the debt reduction plans in 2019, but the company gave no details for the start of 2020 which is only 8 short months away now. Wireless and media giants are making great strides in reducing debt accumulated from the acquisition of Time Warner, but a great deal of debt reduction comes from real estate sales like Hulu and Hudson Yards. Again, AT & T did not buy Time Warner to sell off parts of the business to improve its debt position.

Source: AT & T Q1 & 19; presentation

The result is that AT & T is still in pace to reduce debt to ~ $ 150 billion by the end of 2019. The question is what the company is doing at this time although the influence is reasonable at 2.5x.

Shareholders are facing a long haul risk that the business falls, and the company is caught with a mountain of debt. As the company mentions, AT & T has the free cash flow to repay debt and cover the large 6.4% dividend for now.

Fear remains that AT&T is returning to the debt-based, empire-building mindset in recent years. Another line on the chart that puts a 2020 debt target at $ 140 billion will do wonders for the stock.

Takeaway

The key investment is that this analysis of the results is initially a summary of the whole problem. The discussion is too focused on the weakness of DirecTV and HBO and not enough on 5G wireless potential. Unfortunately, this analysis is very necessary because of the actions of today's management.

HBO may have a big hit in Play of Thrones but the stock game does not continue to be fun for the shareholders. The shares are trading at ~ 8.5x forward EPS estimates, but unfortunately, for shareholders, AT&T is unlikely to accumulate until management makes clear claims that 2020 will be a year focused on 5G mobility and further debt reductions. Hopefully, the weakness of the stock strengthens the hand of the management that leads to shareholders, eventually rewarded with the great dividend and positive return on capital.

Enlightenment: I am / we are long T. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.

Additional Information: The information in this article is for informational purposes only. Nothing in this article should be taken as a call to buy or sell securities. Before you buy or sell any shares, you should do your own investigation and reach your own conclusion or consult a financial advisor.