In partnership with

Stocks of the Week!

In this email:

• New Number, Who’s this?💅

New Number, Who’s this?💅 

Someone at AT&T must’ve been tuning in to the Dave Ramsey Show. He’s the guy that’ll beat you over the head with his “Baby Steps” if you even mention the word “debt” around him.

Or maybe they’re just sick of the obscene interest payments but whatever it is, they’ve decided to give their balance sheet a glow up 💅 AT&T have been dragging a pretty heavy ball & chain of debt around for a while but have finally taken big steps to pay it down.

That’s one of the big reasons I’ve got them in my notebook scribbled under the “Buy” section.

Let’s take a closer look at why the debt repayment’s so important & why you need this telecoms giant in your portfolio. 👇️ 

What Can We Expect From Q3? 

October 23rd. That’s the day to circle in red as an AT&T investor. It’s the day for Q3 results & here’s what to expect:

1/ Broadband Subscriber Growth: Analysts expect net broadband subscriber additions of 230-250k. Not a huge surprise here. AT&T’s been gaining momentum in this area for a while but steady growth is still growth 📈If anything, I prefer steady growth when investing. Spikes & dips in a customer base is not what you want to see.

2/ ARPU (Average Revenue Per User): Like a doctor on a maternity ward, we’re expecting a bump here, too. A 2-3% increase is what’s been penciled in. That’d push ARPU to around $67 per user. For a company, getting more money from existing customers is the cheapest & most effective way to bump revenues & profit margins so I’ll be paying close attention to this one. A win here will make me even more confident adding to my position.

3/ Free Cash Flow Confirmation: AT&T’s been guiding for $17-18 billion in free cash flow this year. Q3 should solidify that target. More cash flow is what gives AT&T the firepower to keep paying down debt so this is another super important area to see doing well.

4/ Debt Repayments: Remember the debt I mentioned at the start? Well we’re expecting them to announce $1-2 billion in net debt repayments for the quarter. They should be able to afford that based on their cash flow. Anything below that would be meh. Knock out that debt & the balance sheet starts to look a lot healthier.

But don’t all company’s carry carry some level of debt?

Why Does This Debt Repayment Matter So Much? 🤔 

You’ve probably heard from your favourite finance expert that there’s good debt & bad debt. That is true. In AT&T’s case it looks like good debt gone bad.

What does that mean? Well, let me explain.

A lot of AT&T’s debts come from business acquisitions. Good, right? Use debt to leverage purchasing power & make more money. But what happens if the acquisitions don’t perform how they’re supposed to?

All of a sudden taking on that debt seems like not such a great idea.

And that’s kind of where AT&T have found themselves with $129.5 billion (yes, billion. With a B) in net financial debt as of the end of Q2. You can start to see why investors have been a bit hesitant to jump aboard.

The good news is they’re aggressively paying it down & I want to be holding the stock before the rest of the market gets confident & it reflects in the stock price.

Debt repayments don’t just make the company healthier. They free up cash that would’ve gone to interest payments. AT&T’s been saving millions in interest expenses thanks to these repayments. 📉 

Less debt = less interest to pay = more cash to either reinvest or reward shareholders like me & you

And just like Dave Ramsey teaches, debt repayments have a snowball effect as you pay down more principle, you owe less interest, can pay more principal….. until it’s all gone.

Is AT&T’s Valuation Too Good to Pass Up? 

Let’s talk numbers. Right now, AT&T is trading at a forward P/E ratio of 9.5x. That’s a pretty solid deal on a value proposition but how does it compare to it’s competition?

Verizon is probably their biggest rival & best point of comparison. Verzion’s forward P/E is slightly lower at 9.3X so wouldn’t this make them a better deal if you’re looking to invest in the telecoms space?

Not exactly. 

Verizon might be a touch cheaper but you ever heard the phrase “you get what you pay for”? AT&T’s aggressive debt tackling & potential for future growth make it a better long-term bet. If AT&T keeps paying down debt at this pace, we’ll likely see the stock re-rate even higher. In short, it means there’s more room for price appreciation. 📈

If AT&T keep improving their balance sheet I wouldn’t be shocked to see them trading at 11-12X forward earnings, which would put the stock price somewhere around $25-27 which would be a 15-25% gain on today’s price. Don’t forget they also have a dividend yield of over 5% at current price too.

This revaluation isn’t just relying on debt reduction either. As AT&T chips away at its financial obligations, the extra free cash flow from lower interest payments can be spent on staying ahead of the curve by investing in & growing the broadband & 5G side of the business.

And do you want to know what makes me really excited for next week?

Analysts have set the bar super low on expectations for earnings. Too low, in my opinion. We’re talking 13 downward revisions in the last 90 days. If AT&T come out swinging we’ll probably get a nice spike in price pretty quickly as the FOMO kicks in.

No FOMO here. I’ve already got my seat. 🍿 

Navigate the Stock Market with these Free Daily Trade Alerts

• Master the market in 5 minutes per day

• Hot stock alerts sent directly to your phone

• 150,000+ active subscribers and growing fast!

Gain Free Access Here

That’s all! See you same time next week 👋 

P.S Hit reply & let me know what you thought of this weeks newsletter. All feedback is welcomed ❤️