S&P 500   4,591.67
DOW   35,227.03
QQQ   386.20
S&P 500   4,591.67
DOW   35,227.03
QQQ   386.20
S&P 500   4,591.67
DOW   35,227.03
QQQ   386.20
S&P 500   4,591.67
DOW   35,227.03
QQQ   386.20

AT&T Just Pulled Guidance But It May Not Matter

Wednesday, April 22, 2020 | Thomas Hughes
AT&T Is A Blue-Chip Tech Stock With A High Yield

AT&T (T) made headlines today when it issued its first-quarter earnings report and pulled full-year guidance. The company says the pandemic is affecting business in all segments and regions of the world. The net impact of the virus to Q1 operations is about $600 million, more than half of which management says is short-term in nature.

“The economic effects of the pandemic and resulting societal changes are currently not predictable. We expect that COVID-19 could affect additional areas of our business in future quarters and that the financial impacts could vary from those seen in the first quarter. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains.”

Revenue Falls More Than Expected

AT&T reports revenue of $42.78 billion in the first quarter. This is down -4.6% from the previous year and 300 basis points more than the consensus estimate. Weakness was seen in all segment although the media/entertainment businesses saw the biggest declines. On the bottom line, EPS is more or less in-line with consensus (GAAP beat by a penny, Adj missed by a penny) due to an unexpected increase in margins.

The Communications segment saw the smallest decline, -2.6%, due to an improvement in margin. The margin for the segment came in at 24% or 120 basis-points better than expected. Total phone net additions for the quarter is 120,000, more than expected, and include negative impacts from two sources. One source is the total of pre-paid subscriptions. Total prepaid subscriptions fell by 45,000 because of store closures and lack of market access.

The other is the Keep America Connected Pledge. AT&T is allowing customers who request assistance to stay connected during the crisis. These customers are counted as disconnected for the quarter, a fact that is significant because many of them will resume service when a semblance of normalcy returns to our lives.

On the entertainment end of the business, WarnerMedia revenue fell -12% while Turner declined about -8.0%. The decline at Warner was, to a large part, already expected because of no major movie openings this year. The decline at Turner is blamed on the cancellation of March Madness but management blew that one off as insignificant to profitability. Bottom-line, AT&T’s core business is intact and doing fine, revenue growth may resume later this year. It will come back next sure for sure.

High-Yield Dividend Stability With Growth In The Forecast

One of the most important qualities investors should look for in their stocks today is blue-chip reliability and AT&T has that. As a telecommunications giant and key hub in the global telecommunications infrastructure, its business is well-protected now and in the future. The other most-important quality investors should look for their stocks today is dividends and dividend health. And AT&T has that.

At first glance, you may think the 7% yield a warning sign of imminent danger as it often is. In this case, the high-yield is the result of a panic sell-off that threw good stocks like AT&T out with bad ones. To begin with, AT&T is a Dividend Aristocrat with 35 years of regular distribution increases under its belt. That is not a guarantee of dividend health I know but it shows the company’s commitment to paying.

In terms of health, the payout ratio for 2020 is just over 20% at current payout rates and earnings expectations. Today’s news does not alter that. Looking at the balance sheet there is plenty of cash on hand and double that amount in receivables. The debt load is well-managed long-term debt and the coverage ratios are good so no worries there. Dividend increases are still in the forecast too.

The Technical Outlook: You Might Be Able To Get A Better Price But I Wouldn’t Bet On It

The AT&T chart shows signs of bottoming but there is some risk, too. The price action is still below the short-term moving average, even with today’s pre-opening pop, and that may provide resistance in the near-term. The indicators are bullish but consistent with resistance and possible peak so the risk is real, the stock could pull back, but I’m not so sure it will. Today’s news isn’t great in the rally-inducing sense but it is great news. AT&T has soothed investor fears and shown it can weather this storm and come out stronger.

If price action surpasses the short-term moving average further upside is likely. Such a move would confirm the reversal that began early in the month and take the stock up to the $32 and maybe the $34 level. Longer-term, I think this stock will continue to edge higher over the next several quarters simply because of yield. A safe 7% yield paid by a blue-chip, virus-resistance, tech stock is attractive indeed.

AT&T Just Pulled Guidance But It May Not Matter
7 Stocks That are Ready For a Santa Claus Rally

With the end of the year approaching, many investors are looking to rebalance their portfolios. That typically means casting a critical eye at some of your strong performers and making a decision on whether they will move higher. And one thing that can dip the balance in favor of retaining a stock is the likelihood of a Santa Claus rally.

The technical definition of a Santa Claus rally is a rally that starts in the last few trading days of the year after the Christmas holiday. In recent years, however, that definition has been expanded to take into account a December rally. And with Black Friday beginning earlier and earlier and really not ending until after the holiday's end, this makes some sense.

So will there be a rally in 2021? I wouldn’t bet against it. The market continues to want to move higher and January is historically a strong month for stocks. With that said, we believe quality should still matter. Here are seven stocks that stand to benefit with or without a Santa Claus rally.

View the "7 Stocks That are Ready For a Santa Claus Rally".


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