AT&T Inc. (NYSE:T)
On Thursday, following the release of AT&T (NYSE:T) quarterly earnings, the company’s stock had a single-day decline that was the most significant in more than 20 years. Analysts at J.P. Morgan believe that the stock is attractive enough at present prices to warrant a purchase.
Despite the fact that the telecommunications company’s first-quarter results were basically in line with expectations—earnings per share were slightly ahead, while revenue was below—shares in AT&T (NYSE:T) dropped more than 10% on Thursday, marking the stock’s largest daily downward move since the year 2000. Even with a one percent increase in value during Friday’s premarket trading, the shares are still down after reaching a closing price of $17.65.
J.P. Morgan analysts led by Philip Cusick wrote on Thursday that if they were in their position, “We would be buying here.” They maintained their Overweight rating on the stock while lowering their price objective for it from $23 to $22.
The analysts stated, “We see a very favorable risk/reward,” and continued, “Expect a gradual rebound in shares from this level but no catalyst for it to break above $20 this quarter.”
The opinion of J.P. Morgan is that the fundamentals of AT&T are strong; but, the management of the company could have taken actions that would have prevented the decline in the stock price.
Alongside a slowdown in subscriber growth for its postpaid phone plans, a bad spot in the company’s results was a shortfall in free cash flow. This shortfall was in the spotlight after AT&T decreased its dividend last year, which put the spotlight on the issue.
AT&T decreased its dividend when it split off into a separate company. Why It Is Still Sufficiently Large.
AT&T’s dividend is still among the highest in the S&P 500 even after the company announced a new yield of 5.7%, which is lower than its previous payout.
Keep going with the reading. The free cash flow came in at $1 billion, which is far lower than the $3.2 billion that experts had anticipated it would be.
“AT&T had flagged at conferences that free cash flow would be low for the year, but clearly could have managed expectations,” the analysts added. “AT&T had flagged at conferences that free cash flow would be low for the year.”
The analysts stated that they wanted to see management and investor relations more aggressively manage numbers in public events, particularly a statistic that has so clearly been the focus of investors for years. “We would like to see management and investor relations more aggressively manage numbers in public events,” the analysts wrote. We believe that the credibility of management will increase with time; nevertheless, until that time, the share volatility makes investors apprehensive of defending shares in what should have been a relatively minor setback.
A request for comment that was sent to AT&T was not immediately met with a response.
Another justification for purchasing the stock after the drop in price that occurred after the release of the company’s earnings is the possibility that the decline was made worse by market dynamics other than fundamentals.
According to the analysts, “There was some fast money in the stock looking for a net adds beat, which contributed to the sell-off.” This was one of the factors that led to the decline. AT&T’s average earnings-day volatility of plus or minus 7% over the past six quarters belies the increasingly stable outcomes the company has seen in the business.
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