AT&T (NYSE:T) Proves Value of Diverse Product Line as Gains Offset Losses

Looking at the results this quarter for AT&T (NYSE:T) demonstrates, and shockingly well, why having a company's fingers in a wide range of pies is such a worthwhile stance to take. While not all of AT&T's business went well, some parts did well enough by comparison to take up quite a bit of the slack.

A Thoroughly Mixed Bag

The good news for AT&T came right out of the gate, as earnings for the fourth quarter were turned in at $0.75 per share. A FactSet consensus report was looking for $0.73, which means AT&T didn't have a huge win, but a win nonetheless. The year-over-year comparison wasn't anywhere near so good, however, as last year the company posted $0.89 per share for the same time frame.

Revenues, meanwhile, also came in above expectations, as the company brought in $45.7 billion for the quarter against an expected $44.55 billion via Yahoo Finance polling.

The numbers within the company itself were where the biggest mix of results occurred. AT&T ultimately booked at $15.5 billion charge on its pay-TV operations, as customers cut the cable in favor of streaming video platforms throughout the spectrum. AT&T saw losses not only in its cable offerings, but also in its DirecTV operations. Additionally, the WarnerMedia unit proved a major loss as revenue dropped to $8.6 billion, down 9.5% against the same time the previous year.

Even as WarnerMedia lost ground thanks to the pandemic shutting down production, HBO Max operations delivered a step up as customers looked for content in the wake of shutdowns all over. AT&T also found growth in wireless activations and fiber internet customers as the everything-from-home phenomenon caught on, by both necessity and preference.

Increasingly Bullish Sentiment

Our latest research, meanwhile, finds that the analyst consensus is warming to AT&T, and has been doing so for the last six months. Six months ago, the company had two “sell” ratings, 15 “hold” and 11 “buy” to its credit. Three months ago, that ratio shifted to four “sell”, 10 “hold” and 13 “buy”. A month ago, that changed once again to four “sell”, eight “hold” and 13 “buy.” Now, today, the ratio stands at four “sell”, seven “hold” and 13 “buy”. What's interesting here is that “hold” ratings seem to be departing analysis of AT&T, leaving only buyers and sellers, and in proportions increasingly interested in buying.

The price target, meanwhile, has been slipping for the last six months. Six months ago the company sat at a consensus of $35.38. That dropped to $33.60 three months ago, and to $32.39 a month ago. Today, we're at $32.33, and as the company's share price is $29.76 as of this writing, there's at least some upside potential to go here. So far this year, only two adjustments have been made to AT&T projections, with Credit Suisse dropping its target to $30 from $31, and Raymond James upgrading its outlook from “market perform” to “outperform,” but leaving its price target at $32.

Weathering Losses by Making Gains Elsewhere

The absolute best thing about AT&T here is its sheer stability. AT&T is actually to the point where it has some divisions that will do well because other divisions didn't. Thus, we got the highly unusual picture of AT&T losing ground because it couldn't shoot movies any more or put them in theaters, while at the same time, it made money because it could offer streaming video, including streaming movies, and offer the internet access required to do so. That does sort of limit its maximum upward potential; the catalysts required to make some divisions explode will cripple other divisions. What it does do, however, is keep AT&T's share price phenomenally stable and make its dividend—at last report $0.52 per share—remarkably safe. Income investors should certainly consider making AT&T a part of the portfolio.

Sure, things aren't all good right now; the company is fending off a $1.35 billion lawsuit from Network Apps LLC over allegations that AT&T stole Network Apps' device synchronization technology while the two were engaged in a joint development operation back in 2014. The market conditions for entertainment properties are likely to continue being shaky at least for a while; it's difficult to film new content with masking requirements and social distancing in place. Yet even as AT&T sees its footing falter in one sector, footing in another rises up to meet it. That would seem to make AT&T a very stable operation, and while it likely won't be a huge gainer in share price, it's likely to make its dividend a safe proposition for the foreseeable future.