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AT&T Inc Valuation – April 2018 $T

Company Profile (excerpt from Reuters): AT&T Inc., incorporated October 5, 1983, is a holding company. The Company and its subsidiaries provide communications and digital entertainment services in the United States and the world. The Company operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility and International. The Company offers its services and products to consumers in the United States, Mexico and Latin America and to businesses and other providers of telecommunications services worldwide. The Company also owns and operates three regional Television sports networks, and retains non-controlling interests in another regional sports network and a network dedicated to game-related programming, as well as Internet interactive game playing. The services and products offered by the Company vary by market, and include wireless communications, data/broadband and Internet services, digital video services, local and long-distance telephone services, telecommunications equipment, managed networking, and wholesale services. Its subsidiaries include AT&T Mobility and SKY Brasil Servicos Ltda.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of T – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $218,945,609,378 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.97 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 67.00% Pass
6. Moderate PEmg Ratio PEmg < 20 11.23 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.56 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.97 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -56.16 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.17
MG Growth Estimate 10.24%
MG Value $92.00
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $46.03
MG Value based on 0% Growth $26.98
Market Implied Growth Rate 1.36%
Current Price $35.65
% of Intrinsic Value 38.75%

AT&T Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.89 in 2014 to an estimated $3.17 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.36% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into AT&T Inc. revealed the company was trading below its Graham Number of $41.02. The company pays a dividend of $1.97 per share, for a yield of 5.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.23, which was below the industry average of 41.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-36.26.

AT&T Inc. fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$36.26
Graham Number $41.02
PEmg 11.23
Current Ratio 0.97
PB Ratio 1.56
Current Dividend $1.97
Dividend Yield 5.53%
Number of Consecutive Years of Dividend Growth 14

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $79,146,000,000
Total Current Liabilities $81,389,000,000
Long-Term Debt $125,972,000,000
Total Assets $444,097,000,000
Intangible Assets $219,725,000,000
Total Liabilities $303,236,000,000
Shares Outstanding (Diluted Average) 6,180,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.26
Dec2017 $4.76
Dec2016 $2.10
Dec2015 $2.37
Dec2014 $1.24
Dec2013 $3.42
Dec2012 $1.25
Dec2011 $0.66
Dec2010 $3.35
Dec2009 $2.05
Dec2008 $2.16
Dec2007 $1.94
Dec2006 $1.89
Dec2005 $1.42
Dec2004 $1.77
Dec2003 $2.56
Dec2002 $1.69
Dec2001 $2.07
Dec2000 $2.24
Dec1999 $2.36
Dec1998 $2.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.17
Dec2017 $3.01
Dec2016 $2.12
Dec2015 $2.02
Dec2014 $1.89
Dec2013 $2.19
Dec2012 $1.68
Dec2011 $1.94
Dec2010 $2.48
Dec2009 $1.99
Dec2008 $1.92
Dec2007 $1.84
Dec2006 $1.82
Dec2005 $1.82
Dec2004 $2.04
Dec2003 $2.17
Dec2002 $2.03

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – February 2015
40 Companies in the Spotlight This Week – 2/21/15
5 Most Overvalued Dow Components – February 2015
AT&T Inc. Annual Valuation – 2015 $T
5 Most Overvalued Dow Components – January 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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