Long-established in the Telecommunication Services industry, AT&T Inc (T, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0.48%, juxtaposed with a three-month change of 18.48%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of AT&T Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 7/10
- Growth rank: 3/10
- GF Value rank: 3/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned AT&T Inc the GF Score of 69 out of 100, which signals poor future outperformance potential.
Understanding AT&T Inc Business
AT&T Inc, with a market cap of $163.88 billion, is a major player in the telecommunications sector. The company generates $122.06 billion in sales with an operating margin of 20.19%. The wireless business is a significant contributor, accounting for nearly 70% of AT&T's revenue. It is the third-largest US wireless carrier, serving 72 million postpaid and 17 million prepaid phone customers. Fixed-line enterprise services, which include internet access and private networking, make up about 15% of revenue. Residential fixed-line services, primarily broadband internet access, account for 11% of revenue. Additionally, AT&T has a presence in Mexico, serving 23 million customers, though this only contributes 4% to revenue. Recently, the company agreed to sell its 70% equity stake in DirecTV to private equity firm TPG.
Financial Strength Breakdown
AT&T Inc's financial strength indicators present some concerning insights about the company's balance sheet health. AT&T Inc has an interest coverage ratio of 3.61, which positions it worse than 58.3% of 283 companies in the Telecommunication Services industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.81, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.02 indicates a struggle in handling existing debt levels.
Growth Prospects
A lack of significant growth is another area where AT&T Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -11% per year over the past three years, which underperforms worse than 89.2% of 361 companies in the Telecommunication Services industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, AT&T Inc's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Next Steps
AT&T Inc's financial strength, profitability, and growth metrics, as highlighted by the GF Score, underscore the firm's potential for underperformance. The company's challenges in managing debt, declining revenue, and low growth prospects suggest that it may struggle to meet investor expectations in the future. For value investors, these insights provide a critical perspective on AT&T Inc's potential trajectory. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
