On Friday, AT&T (T) and Discovery closed the $ 43B “Reverse Morris Trust” deal, which turned their media operations into a large, potentially important player in the space, splitting the major telecom and telecommunications businesses.
Discovery (including Discovery, Discovery +, HGTV, Science Channel, Cartoon Network, TCM, DNT) AT&T’s Time Warner Business (including Warner Bros., HBO, Cinemax, Turner Broadcasting, CNN, CNN, CNY, CNY, CNY) , Food Network, DLC, Animal Planet, etc.). AT&T is evolving into a more sophisticated, lightweight company focusing on 5G, wireless communications and fiber-optic networking.
The new, integrated media company advanced to Warner Bros. Discovery, trading under the index on the Nasdaq (WBD) on Monday.
Under the terms of the agreement, AT&T received $ 40.4B in cash at the close and WarnerMedia retained some debt. AT&T shareholders acquired 0.241917 shares of the new WBD for each share of AT&T Public Shares. AT&T shareholders acquired 1.7B shares of WBD, which held about 71% control over the new company and former Discovery shareholders held the balance sheet.
Former Discovery chairman and CEO David Jaslow took over the same position at Warner Bros. Discovery, while AT&T CEO John D. Snyder succeeded Randall Stephenson in 2020. Stongy will retain that position.
Where does this leave AT&T?
Readers should be reminded that AT&T guided 2023 revenue growth a month ago to lower single digit (%) growth with FY EPS adjusted to $ 2.50 to $ 2.60. In terms of dividends, the company expects to reach $ 20B with a 40% payout rate against the forecast free cash flow. This allows the company to invest approximately $ 48B (if all goes as planned) by expanding its 5G capabilities and coverage while upgrading its fiber optics network. More about dividends? AT&T will trade X-Dividend tomorrow (Wednesday) and pay a $ 0.28 quarterly share to registered shareholders, which will be paid this Thursday, May 2nd. This is well below the $ 0.52 payout for the next five quarters. However, annually, the payment adds up to $ 1.11, which is good for a 5.65% yield.
Will that yield last long? AT&T reports next week. Wall Street expects a $ 0.59 adjusted EPS in the $ 29.5B earnings range from $ 0.53 to $ 0.62. The company will have to spend to upgrade the newly focused costs, perhaps more than expected. The company also needs to fix the balance sheet, which was simply horrible at the end of the year. Not only did the company’s current ratio come to just 0.7, but the company’s net cash balance was 0.14% of total long – term debt. Add $ 40.4B derived from the contract (as if for no other purpose) and 0.14% becomes 0.4%. Not impressed.
Oh, one more thing. AT&T stood at the end of the year (not joking) with a firm book value of $ -17.70 per share. In addition, the already mentioned balance “proud” total assets are $ 561.622B. Goodwill? $ 133.223B Other intangible assets? $ 159.493B. That means $ 292.716B or 52.1% of total assets in the AT&T book were “intangible” assets. That is, you can actually define just 47.9% of the company’s total assets. Awesome.
Through TipRanks commenting on AT&T this week I was able to find three stars or five best rated analysts and four sales side analysts (3 stars +) who started WBD’s coverage. The first five AT&T … rated AT&T “buy” or equivalent. The average target price set by five is $ 23.80, with a maximum of $ 26 (Raymond James’ Frank Louthon, 3 stars, and a minimum of $ 22 twice … Citigroup’s Michael Rollins, 5 stars and JP Morgan’s Philip Kusick, 4 stars). I’m currently looking at the last sale of $ 19.73.
According to WBD, Deutsche Bank’s Brian Croft’s rating is “Buy” at $ 48 with a target price of $ 48, while Atlantic Equities’ Hamilton Faber and Evercore ISI’s Vijay Giant (both rated 3 stars) are rated WBD. “Buy” or equivalent with identical $ 40 target prices. Finally, David Hecker, Edward Jones’ star rating, put a “hold” rating on the stock without any target price.
I think we are waiting for the AT&T reports before we give our verdict. Warner Bros. Discovery reports a week later. I will trade anything. In terms of investment, WBD has its work in a competitive landscape, but at least the initial balance sheet is not bad from the current perspective, but AT&T? What in the world? If telecom is your thing, go to Verizon (VZ), but I would say there is no such thing as a bowl of cherries, and Verizon’s firm book value is still high (is that a word?). Sorry folks. The best stock mentioned in it may be WBD, but none of these mention my name. With seven times the forward revenue, AT&T is not cheap. There are better places to put your money. Only my opinion. If you do not have a margin. It gives me an idea.
Business idea (Low volume)
– Buy 100 shares of T at or near the last sale of $ 19.71.
– Write an April 29 (post-income) $ 22 call for about $ 3.25.
– Receive a dividend payment of $ 0.28 on May 2nd.
Net base: $ 16.18
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