Why AT&T Stock Sank More Than 8% Today

AT&T beat earnings in 2021. It might not be so lucky in 2022.

AT&T beat earnings in 2021. It might not be so lucky in 2022. What happened

Shares of telecommunications giant AT&T (NYSE:T) tumbled in Wednesday afternoon trading, despite the company reporting an earnings beat in the morning.

Ahead of the fourth-quarter release, analysts had forecast AT&T would report $0.76 per share in adjusted earnings on $40.4 billion in revenue. In fact, it beat on both the top and bottom lines. Revenue came in just under $41 billion, and AT&T earned $0.78 per share on a pro forma basis.

At the close of trading, AT&T stock was down by about 8.4%.

Big red arrow going down over a stock chart.

Image source: Getty Images.

So what

While it’s true that the company “beat earnings,” not all the news in the report was as good. For one thing, while revenue exceeded expectations, it was still down 10% year over year. Pro forma earnings, meanwhile, were ahead of expectations — but only up 4% year over year.

Also worth pointing out is the fact that AT&T’s earnings looked worse when calculated according to generally accepted accounting principles (GAAP) than when reported according to AT&T’s preferred, “adjusted” formula. GAAP profits for Q4 were actually only $0.69 per share — significantly below the $0.78 per share headline figure.

For the full year, AT&T’s revenues declined 2% to $168.9 billion. Pro forma profits increased 7% to $3.40 per share. GAAP profits were $2.76 per share, versus a loss in 2020.

Now what

All that being said, AT&T did report $26.8 billion in free cash flow generated for the year. Even at a hefty $368 billion enterprise value, that works out to an enterprise-value-to-free-cash-flow ratio of only 14. With a dividend that yields a generous 7.9% at current share prices, I have to say that valuation sounds attractive … if AT&T can manage to keep growing its business.

The problem, however, is that AT&T does not seem to be planning to grow much — not in 2022, at least. On the one hand, management’s guidance for the coming year is for revenues to rise by a low-single-digit percentage. On the other hand, both earnings and free cash flow look set to decline. Management is forecasting adjusted earnings per share as low as $3.10 in 2022 — potentially as much as a 9% decline. For free cash flow, AT&T is targeting only $23 billion — a decline of 14%.

Long story short, it was weak guidance for the year ahead that caused investors to sell off AT&T stock Wednesday, despite its Q4 earnings beat.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

“> Motley Fool Returns

Stock Advisor S&P 500

479% 134%

Join Stock Advisor

Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Advisor list price is $199 per year.

Stock Advisor launched in February of 2002. Returns as of 01/26/2022.

Cumulative Growth of a $10,000 Investment in Stock Advisor Calculated by Time-Weighted Return Chart Showing the Cumulative Growth of a $10,000 Investment in Stock Advisor

Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Big red arrow going down over a stock chart.

Source: https://www.fool.com/investing/2022/01/26/why-att-stock-sank-more-than-8-today/

Like this post? Please share to your friends:
Crypto Truth