Stock Pitch Exercise

AT&T
Business Overview

Summary Financials

Market data

Drivers

Valuation

Downside risks

AT&T is the second largest provider of mobile telephone and the

largest provider of fixed telephone in the US, and also provides
broadband subscription television services.
Operates primarily through Wireless (wireless voice and data
communication services), Wireline (landline data and voice
communication services) and International (DTV and other subscription
television services).
2014A: Revenue of USD132.4bn, EBITDA of USD31.7bn, Net income
of USD6.2bn, EPS of $1.19
YTD30Sep15: Revenue of USD139.1bn, EBITDA of USD32.1bn, Net
income of USD5.3bn, EPS of $0.95
2015E: Revenue of UD148.2bn, EBITDA of USD47.3bn, Net income of
USD14.4bn, EPS of $2.65
Closing price 7th Dec 15: $34.27
52 week range: 30.97 36.45
Consolidated market cap: 209,845m
Acquisition of DTV: acquisition of DTV has made AT&T the most
diversified across various facets of telecommunication and media
distribution. Not only that, DTV business is strong in Latin America; this
gives AT&T, a matured business, access to a high growth market.
Potential cost saving synergies from this acquisition as well.
Project Agile launched in 2014, a series of initiatives streamlining
business operations, which should start to create savings in 2016 that
accelerate to a $1.5-2.0bn rate in 2017.
DCF: Share price of $58.62, WACC of 6%, perpetual growth of 2%
Trading comps: Share price of $50.72, selected competitors such as
T-Mobile, Sprint, Verizon, BCE Inc. AT&T is trading at a EV/NTM
EBITDA of 6.2x while average in industry trades at 10.2x.
Based on closing share price of $34.27 on 7th Dec 15, we see an
upside potential of c.50% to AT&Ts share price. Significantly
undervalued by the market.
Strong competition from T-Mobile and Sprint, AT&T is under
pressure for its poor network quality and customer satisfaction;
Cable companies becoming more aggressive: AT&T might see more
competition from cable TV companies for both video and broadband
services
Enterprise and small business revenue remains heavily exposed
to any economic weakness: AT&T has seen the benefit of the
economic stabilization in the last year through slowing revenue losses
in its enterprise and small/medium-sized business divisions. if the
economy starts to fade again or unemployment ramps back up, AT&T
could see a reacceleration in revenue losses and margin compression.