Last night, AT&T held a sell-side analyst meeting. Before the meeting, several firms made note of what they expected to learn and commented on the guidance provided by management ahead of the meeting. Kevin Smithen of Macquarie Securities explained, “AT&T preannounced positive results which should bolster the shares, in our view, amid recent concerns over cord-cutting and forex. The $4.5+ billion in Q3 FCF [free cash flow] was particularly strong, in our view, and T’s ~6% yield appears too high for its improving future dividend coverage.” Smithen also noted that management commented that Mexico network deployment is on-track to meet existing target of 40 million covered POPs by year-end.
John Hodulik of UBS said, “In advance of an analyst meeting, AT&T reiterated guidance for full-year adjusted EPS of $2.62-2.68, double-digit revenue growth, and continued consolidated margin expansion despite FX pressure. Its recent 8-K had suggested, applying the 200:1 Fx ratio in Venezuela would have lowered DirecTV’s revenues by $846 million in 2014 and $188 million in 1Q15 and caused an operating loss. AT&T expects 3Q capex to be above 2Q’s $4.7 billion level and FCF to exceed $4.5 billion.”
Amir Rozwadowski of Barlcays commented, “We believe most of the announcements were consistent to slightly better than our expectations. We recognize this quarter does have many moving pieces given the first quarter of DirecTV ownership. AT&T guided for free cash flow of $4.5 billion (or greater) during 3Q which was somewhat shy of our roughly $5 billion estimate. Capex may have played a role, as the 8-K points to a sequential uptick. Also, we believe initial investments in DirecTV and the integration may make quarterly cash flow a difficult target to predict for the near-term. Positively, the initial cash flow is certainly consistent with AT&T’s goal of maintaining a payout ratio in the 70%+ range, as outlined at the Analyst Day and we believe the protection of the dividend stream makes shares attractive given recent market volatility.”
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