AT&T's Corporate Restructuring Will Add to Existing Value
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AT&T Inc. (NYSE:T) is a great investment option at the moment. The stock is set to experience upside through both systemic and idiosyncratic tailwinds. From a market perspective, the company is expected to perform well as it's a value stock, which typically combat inflation. The company is also in a restructuring process, causing investors to anticipate substantial gains.
Restructuring
AT&T has agreed on a deal with Discovery Inc. (NASDAQ:DISCA) to spin off its media assets. The purpose behind the agreement is to create a stand-alone brand, which will experience more significant synergies with the involvement of Discovery.
The company will retain 71% of the business and receive $43 billion in cash and debt securities, which will help it pay off much of its debt burden. The capital will add needed liquidity to its balance sheet as it embarks on a 5G campaign with significant opportunity cost.
AT&T has been following Verizon's strategy by divesting and offloading a significant amount of its non-core business assets. The company signed an agreement earlier this year to sell its video streaming business for $7.6 billion. As cash gets added to the balance sheet through non-core business divestments, analysts will start backing out the conglomerate discount, which could add a significant amount of value to the stock.
Value
A dividend yield with constant growth is usually an indicator of value and not only higher future dividend income.
A yield of 7.43% is sublime and indicates that AT&T holds a significant amount of value.
Source: Morningstar.
From a relative standpoint, investors should understand we're in a higher multiple market. But even by considering the higher multiple market, we can conclude AT&T is undervalued relative to the index as its price-sales, price-earnings, price-to-cash flow and price-book ratios all trade below benchmark values.
Final word
AT&T is already an excellent investment as it is a high-quality business with a high dividend yield and good relative value metrics. The restructuring of its business will add liquidity to the balance sheet and expand its core business, subsequently increasing market share and intrinsic value.
This article first appeared on GuruFocus.
