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Is AT&T Inc. (NYSE:T) Undervalued at 1.15x Price To Sales?


AT&T Inc. (NYSE:T) is currently trading at $28.28, at approximately 71.2% of its 52-week high of $39.70. With the stock price down -19.9% in the last year, it looks like the company is getting cheap. So, is AT&T Inc. undervalued? In this article, we’ll discuss AT&T Inc.’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering AT&T Inc.’s latest twelve months revenue/share of $24.58 and using the company’s 5-year average price to sales of 1.46x as a benchmark, we have a fair value of $35.90, which is 26.9% higher than the current price.

With no surprise, we can see that AT&T Inc.’s price to sales of 1.2x is much lower than its 5-year average of 1.5x, indicating that the company is probably trading at a discount to its fair value. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart Engine

Absolute Valuation: AT&T Inc. DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze AT&T Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of -0.4%, an average EBITDA margin forecast of 33.4%, a discount rate of 7.0%, and a terminal EBITDA multiple of 7.7x, we get a fair value of $38.7.

So, Is AT&T Inc. Undervalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, AT&T Inc.’s fair value is $32.94, representing a 16.5% upside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: AT&T Inc.

AT&T Inc. provides telecommunication, media, and technology services worldwide. The company operates through four segments: Communications, WarnerMedia, Latin America, and Xandr.

The Communications segment provides wireless and wireline telecom, video, and broadband and Internet services; video entertainment services using satellite, IP-based, and streaming options; and audio programming services under the AT&T, Cricket, AT&T PREPAID, and DIRECTV brands to residential and business customers.

This segment also sells handsets, wirelessly enabled computers, and wireless data cards manufactured by various suppliers for use with company’s voice and data services, as well as various accessories, such as carrying cases and hands-free devices through the company-owned stores, agents, and third-party retail stores.

The WarnerMedia segment primarily produces, distributes, and licenses television programming and feature films; distributes home entertainment products in physical and digital formats; and produces and distributes mobile and console games, and consumer products, as well as offers brand licensing services. It also operates cable networks, multichannel premium pay television, and over-the-top services; and digital media properties.

The Latin America segment offers video entertainment and audio programming services under the DIRECTV and SKY brands primarily to residential customers; pay-TV services, including HD sports video content; and postpaid and prepaid wireless services under the AT&T and Unefon brands, as well as sells various handsets through company-owned stores, agents, and third-party retail stores.

The Xandr segment provides digital and video advertising services. The company was formerly known as SBC Communications Inc. and changed its name to AT&T Inc. in November 2005. AT&T Inc. was incorporated in 1983 and is based in Dallas, Texas.- VIEW LESS

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