AT&T Inc (T, Financial) has recently experienced a daily gain of 3.35%, although it has seen a 3-month loss of 3.45%. With a Loss Per Share of 1.22, the question arises: is the stock fairly valued? This article aims to provide a thorough analysis of AT&T's valuation, inviting readers to delve into the complex world of stock valuation.
AT&T Inc (T, Financial): An Overview
AT&T, the third-largest U.S. wireless carrier, generates about two-thirds of its revenue from its wireless business. The firm also provides fixed-line enterprise services, residential fixed-line services, and has a significant presence in Mexico. Despite a recent spinoff of Warner Media, AT&T continues to hold a 70% equity stake in satellite television provider DirecTV. As of September 14, 2023, AT&T (T) is trading at $15.11 per share, with a market cap of $108 billion. The GF Value, a proprietary measure of a stock's intrinsic value, estimates AT&T's fair value at $15.73.
Understanding the GF Value
The GF Value is an exclusive GuruFocus measure that estimates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade. If the stock price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, affecting its future return.
With its current price of $15.11 per share, AT&T (T, Financial) appears to be fairly valued according to the GF Value. As such, the long-term return of its stock is likely to be close to the rate of its business growth.
AT&T's Financial Strength
Investing in companies with weak financial strength can pose a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. AT&T's cash-to-debt ratio of 0.06 is worse than 82.86% of 391 companies in the Telecommunication Services industry. This ranking indicates that AT&T's financial strength is relatively poor.
Profitability and Growth of AT&T
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. AT&T has been profitable 8 out of the past 10 years, demonstrating fair profitability. However, its growth ranks worse than 88.39% of 379 companies in the Telecommunication Services industry, indicating a need for improvement.
ROIC vs WACC: Evaluating AT&T's Profitability
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to assess its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, AT&T's ROIC was 11.54, while its WACC came in at 5.06, suggesting a positive value creation.
Conclusion
In conclusion, AT&T (T, Financial) appears to be fairly valued. While the company's financial condition is poor, its profitability is fair. However, its growth ranks worse than 91.94% of 335 companies in the Telecommunication Services industry, indicating room for improvement. For more information about AT&T stock, you can check out its 30-Year Financials here.
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