AT&T (NYSE:T) is on a roll. In fact, AT&T stock is up over 10% in less than a month and ready to attack its 52-week high of $38.48 in the next few weeks leading up to its third-quarter 2019 results, which it will report on Oct. 23.
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With businesses across four general operating units covering premium media and entertainment content, telecommunications, Pay-TV and of course its traditional telecommunications, a bet on AT&T is a bet on the global economy.
Any investor with concerns looking at an inverted-yield curve possibly signaling that the U.S. economy is headed into a recession need only look at the bullish sentiment regarding the T stock price over the last several weeks. This run-up in the T stock price was during a period of concerns over a global trade war with China and the U.S. Federal Reserve expressing a certain degree of skepticism about a cooling housing market.
While some investors may want to step back and wait for the enthusiasm to cool off, there are several reasons why the rally in AT&T stock may still have steam left.
Three Reasons to Keep an Eye on AT&T Stock
September Is iPhone Apple Mania Month
September is usually a huge month for Apple (NASDAQ:AAPL) as it often comes down with plenty of hot announcements. And just recently AAPL announced its new iPhone line up. The media coverage will send shoppers flocking to their nearest AT&T store to place orders. AT&T will be among the first carriers to offer the newest iPhone 11, iPhone11 Pro and iPhone Pro Max as well as the Apple Watch Series 5.
Regardless of the actual top-line revenue boost that the new iPhone product line delivers to AT&T, the launch will create buzz that should lift the price of T stock.
Shortly after the Apple iPhone announcement, David Christopher, president of AT&T Mobility and Entertainment, chimed in: “[the] iPhone 11 and iPhone 11 Pro are cutting-edge devices that deserve more than a ‘just OK’ network … AT&T is the nation’s best wireless network that’s also the fastest network for iPhones.”
Further, T has poured billions into its 5G Evolution and will be front and center in offering 5G speeds once the new technology standard is introduced. According to John Stephens, Chief Financial Officer, AT&T plans to have 5G in parts of 29 cities within six months and nationwide 5G coverage on sub-6 GHz spectrum by the first half of 2020.
Warner Media Is Driving Revenues Across Businesses Lines
AT&T is unique in the telecom sector in that it controls parts of the entire value chain from content creation, transmission to point of sale and direct to consumer distribution in premium brand names such as HBO, Directv and SKY. This comprehensive control of the value chain has delivered revenue growth across content sales, consumer distribution and advertising.
According to an update by AT&T to shareholders, “Entertainment Group EBITDA was up nearly 4% in the first half of the year.” The potential long-term strength behind T becomes even clearer when you add to that the fact that Stephens expects the Warner Media synergies to deliver $700 million additional revenue by the end of the year and direct-to-consumer sales will also see a boost next year as AT&T will move forward with the launch of a premium-priced HBO Max service in spring 2020.
AT&T Is De-Leveraging and Optimizing Its Capital Structure
At a recent Bank of America Merrill Lynch Media, Communications & Entertainment conference in Los Angeles, AT&T detailed plans of reducing debt and becoming essentially a company with less financial risk and increased free cash flow. The huge debt load among telecom firms caused in part by the billions spent in the run up to 5G has been an a risk issue plaguing the entire industry.
However, at the conference, Stephens said that AT&T expects to reduce risk and raise between $6 billion and $8 billion by the end of 2019 through asset monetization, including real estate sales. He added that investors should expect share buybacks to be announced later this year. For 2019, AT&T estimates free cash flow in the $28 billion range.
Indeed, AT&T stock has been hot. Some may argue that AT&T stock price may be overvalued, at least in the short term. Yet, as the underlying fundamentals are strong and likely to get even better, there is no sign of the bull run cooling off anytime soon. The third-quarter earnings call on October 23rd could ignite yet another round of buying that will likely push AT&T stock into new territory well past its 52-week high.
As of this writing, Theodore Kim did not hold a position in any of the aforementioned securities.
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