AT&T
Investment Research Report
•
•
•
•
•

Company Description
Industry Analysis
Competitive Analysis
Risks and SWOT Analysis
Valuation
Company Description
• A Fortune 500, American multinational

telecommunications corporation, headquartered in
Dallas, Texa...
AT&T Operating Segments
O

O

O

Wireless
Wireless voice and data communication
services, local wireless communications an...
Industry Analysis
O US wireless is a $200bn industry, with 300mn
O
O

O
O

subscribers
Saturation in voice call segment
Da...
The Road Ahead
O Severe spectrum shortages, forcing companies to

expand existing portfolios
O Tighter FCC regulations wou...
Competition
O Technology
O Economy
O Comparable Alternatives
O Pricing

O Regulation
Competition
Direct Competitor Comparison
T

S

PVT1

VZ

Industry

Market Cap:

185.28B

27.77B

N/A

143.66B

769.74M

Em...
Porter’s Analysis
O Rivalry
O
O
O

Churn Rate
Average Revenue Per User (ARPU)
Lack of “Good” Spectrum

O Threat of Substit...
Risks
Business risks
 Strategic risk
 Operational risk
 Compliance risk
Market risks
 Interest rate risk
 Foreign exc...
Interest rate risk
 Financial instruments held
 Manage interest expense
 Hedge
Foreign exchange rate risk
 Equity investments in foreign countries
 Use of cross currency swaps to hedge.
Few risk factors
 Worsening of US economy
 Adverse changes in interest rates.
 Adverse changes in global financial

mar...
SWOT Analysis
Strengths
a) Brand recognition
b) Experienced
management
c) Robust financials

Weakness
a) Competitive segme...
Valuation
 Dividend Discount Model
 Free Cash Flow to Firm
 Free Cash Flow to Equity
Dividend Discount Model
Used the following parameters:
 Since AT&T is in the mature growth stage,
we calculated the requi...
FCFF and FCFE
 Debt ratio: 43%
 E(r) is 7.63%
 WACC: 5.87%
 Single stage model

 FCFF value: $39.59
 FCFE value: $34...
Recommendation – Buy Buy
Buy
 With recent acquisitions in progress, AT&T

share price could exceed estimation
 Continuou...
Valuation of AT&T
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Valuation of AT&T

  1. 1. AT&T Investment Research Report
  2. 2. • • • • • Company Description Industry Analysis Competitive Analysis Risks and SWOT Analysis Valuation
  3. 3. Company Description • A Fortune 500, American multinational telecommunications corporation, headquartered in Dallas, Texas • Largest provider of fixed & mobile telephony in US • Traces origin from Bell Telephone Company, which invented telephone • In 1984, forced to divest into baby companies, which later on added competition for AT&T. Verizon being one of them
  4. 4. AT&T Operating Segments O O O Wireless Wireless voice and data communication services, local wireless communications and roaming services. Generated over 53% of company’s total revenues Wireline Internet access and network integration, Uverse services, business voice applications over IP-based networks. Contributes to 28% of total revenues Other AT&T’s international equity investments, a 47% equity interest in YP Holdings, and other corporate-driven activities and operations. AT&T Revenue Breakdown Other 19% Wireless 53% Wireline 28%
  5. 5. Industry Analysis O US wireless is a $200bn industry, with 300mn O O O O subscribers Saturation in voice call segment Data and Video new prime focus Estimates indicate data and video to account for 60% of network traffic by end of 2013 Stable near term future based on steady economic recovery
  6. 6. The Road Ahead O Severe spectrum shortages, forcing companies to expand existing portfolios O Tighter FCC regulations would limit growth in domestic market O AT&T actively looking for expansion in subdeveloped European and Latin American markets, making use of reduced cost of borrowing O AT&T has also signed a contract with FON to provide cheaper Wi-Fi access to its customers travelling abroad
  7. 7. Competition O Technology O Economy O Comparable Alternatives O Pricing O Regulation
  8. 8. Competition Direct Competitor Comparison T S PVT1 VZ Industry Market Cap: 185.28B 27.77B N/A 143.66B 769.74M Employees: 246,740 39,000 34,5181 178,300 1.63K 0.02 -0.01 N/A 0.04 0.03 128.17B 35.36B 19.16B1 119.53B 633.04M 0.56 0.42 N/A 0.62 0.62 28.44B 5.24B N/A 34.08B 251.58M 0.10 0.02 N/A 0.15 0.18 7.48B -3.30B N/A 2.20B N/A 1.37 -1.09 N/A 0.77 0.77 25.75 N/A N/A 65.36 25.02 2.19 N/A N/A 1.75 10.21 1.44 0.78 N/A 1.20 1.22 Qtrly Rev Growth (yoy): Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Operating Margin (ttm): Net Income (ttm): EPS (ttm): P/E (ttm): PEG (5 yr expected): P/S (ttm): S = Sprint Corporation Pvt1 = T-Mobile USA, Inc. (privately held) VZ = Verizon Communications Inc. Industry = Telecom Services - Domestic 1 = As of 2011
  9. 9. Porter’s Analysis O Rivalry O O O Churn Rate Average Revenue Per User (ARPU) Lack of “Good” Spectrum O Threat of Substitutes O O Cable TV and Satellite Providers The Internet O Buyer Power O O Telephone and Data Services are a commodity Low Switching Costs O Supplier Power O O Plenty Vendors Limited Pool of Talent O Barriers to Entry O O O High Fixed Costs Federal Communications Commission (FCC) Lack of “Good” Spectrum
  10. 10. Risks Business risks  Strategic risk  Operational risk  Compliance risk Market risks  Interest rate risk  Foreign exchange rate risk
  11. 11. Interest rate risk  Financial instruments held  Manage interest expense  Hedge
  12. 12. Foreign exchange rate risk  Equity investments in foreign countries  Use of cross currency swaps to hedge.
  13. 13. Few risk factors  Worsening of US economy  Adverse changes in interest rates.  Adverse changes in global financial markets.
  14. 14. SWOT Analysis Strengths a) Brand recognition b) Experienced management c) Robust financials Weakness a) Competitive segment b) Union workers c) Pension liability Opportunities a) New technology b) Mobile apps c) I-phone I-pad deals Threats a) Getting new spectrum b) Competitors and consolidation c) Saturation and slowdown
  15. 15. Valuation  Dividend Discount Model  Free Cash Flow to Firm  Free Cash Flow to Equity
  16. 16. Dividend Discount Model Used the following parameters:  Since AT&T is in the mature growth stage, we calculated the required rate of return using the implied growth rate, 2.26%  Assumed risk-free rate at 2.53%  Terminal value calculations based on future values of dividends  Forecast: $34.47 - $36.86
  17. 17. FCFF and FCFE  Debt ratio: 43%  E(r) is 7.63%  WACC: 5.87%  Single stage model  FCFF value: $39.59  FCFE value: $34.75
  18. 18. Recommendation – Buy Buy Buy  With recent acquisitions in progress, AT&T share price could exceed estimation  Continuously increasing dividends  Current Price: $35.72  Targeted range: $34.75 - $39.59

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