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Is AT&T (T) Exploring DirecTV Stake Options for Core Focus?
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According to a Bloomberg report, AT&T Inc. (T - Free Report) is reportedly considering all the viable options for its 70% ownership stake in DirecTV as it nears the expiry of its holding period in America’s third-largest pay-TV provider. Although both AT&T and DirecTV have refused to comment on the industry grapevines, undisclosed sources privy to the discussion have revealed that the talks are in a nascent stage at the moment.
AT&T acquired DirecTV in 2015 for a total consideration of $67.1 billion (including assumed debt) to extend its footprint beyond the realms of the wireless business into the pay television industry. However, the business did not live up to expectations and began to lose subscribers with the emergence of online streaming services.
AT&T lost about 3 million video customers in 2020 and recorded $15.5 billion in impairment charges on its pay television business. Consequently, it divested a minority stake in DirecTV satellite and streaming service along with its U-verse TV operations in 2021 to private equity firm TPG. AT&T received about $7.6 billion from the asset sale and retained a 70% ownership stake in DirecTV, with an option to sell the same after Jul 31, 2024. The agreement with TPG also included a clause that enabled AT&T to hold sale discussions before the end of that commitment period.
Accordingly, the company is exploring various options as its dwindling customer base has cut into the cash distribution it receives from DirecTV, with payments falling sharply to $1.9 billion in the first half of 2023 from $2.7 billion a year ago. In addition to continuing its existing business as before, the other options before AT&T are a dividend recapitalization, the addition of a new investor, or exit from the venture as early as August 2024 through an outright sale.
The separation of the media assets is likely to offer AT&T an opportunity to better align its communications business with a focused total return capital allocation strategy. The company is uniquely positioned to benefit from the upcoming 5G boom. As the first carrier in the industry, AT&T has presented its 5G policy framework that stands on three vital pillars — fixed wireless, edge computing and 5G. It is focusing on a fiber densification strategy, which is anticipated to enhance broadband connectivity for consumers and enterprises, alongside 5G deployments boosting the end-user experience.
With a customer-centric business model, AT&T is likely to benefit from the increased deployment of mid-band spectrum and greater fiber densification. AT&T expects to deploy mid-band spectrum to 200 million users by 2023 end and reach more than 30 million customer and business locations with fiber by the end of 2025. The extensive fiber footprint is likely to minimize its maintenance and repair costs while generating higher ARPU.
The stock has lost 4.4% in the past year compared with the industry’s decline of 8.3%.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 18.7% and delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Motorola Solutions, Inc. (MSI - Free Report) , carrying a Zacks Rank #2, delivered an earnings surprise of 5.62%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 5.58%.
Motorola provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure service providers. It develops and services both analog and digital two-way radio, voice and data communications products and systems for private networks, wireless broadband systems and end-to-end enterprise mobility solutions to a wide range of enterprise markets.
Ubiquiti Inc. (UI - Free Report) , carrying a Zacks Rank #2, is another key pick in the broader industry. Headquartered in New York, it offers a comprehensive portfolio of networking products and solutions for service providers and enterprises at disruptive prices.
Ubiquiti boasts a proprietary network communication platform that is well-equipped to meet end-market customer needs. In addition, it is committed to reducing operational costs by using a self-sustaining mechanism for rapid product support and dissemination of information by leveraging the strength of the Ubiquiti Community.
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Is AT&T (T) Exploring DirecTV Stake Options for Core Focus?
According to a Bloomberg report, AT&T Inc. (T - Free Report) is reportedly considering all the viable options for its 70% ownership stake in DirecTV as it nears the expiry of its holding period in America’s third-largest pay-TV provider. Although both AT&T and DirecTV have refused to comment on the industry grapevines, undisclosed sources privy to the discussion have revealed that the talks are in a nascent stage at the moment.
AT&T acquired DirecTV in 2015 for a total consideration of $67.1 billion (including assumed debt) to extend its footprint beyond the realms of the wireless business into the pay television industry. However, the business did not live up to expectations and began to lose subscribers with the emergence of online streaming services.
AT&T lost about 3 million video customers in 2020 and recorded $15.5 billion in impairment charges on its pay television business. Consequently, it divested a minority stake in DirecTV satellite and streaming service along with its U-verse TV operations in 2021 to private equity firm TPG. AT&T received about $7.6 billion from the asset sale and retained a 70% ownership stake in DirecTV, with an option to sell the same after Jul 31, 2024. The agreement with TPG also included a clause that enabled AT&T to hold sale discussions before the end of that commitment period.
Accordingly, the company is exploring various options as its dwindling customer base has cut into the cash distribution it receives from DirecTV, with payments falling sharply to $1.9 billion in the first half of 2023 from $2.7 billion a year ago. In addition to continuing its existing business as before, the other options before AT&T are a dividend recapitalization, the addition of a new investor, or exit from the venture as early as August 2024 through an outright sale.
The separation of the media assets is likely to offer AT&T an opportunity to better align its communications business with a focused total return capital allocation strategy. The company is uniquely positioned to benefit from the upcoming 5G boom. As the first carrier in the industry, AT&T has presented its 5G policy framework that stands on three vital pillars — fixed wireless, edge computing and 5G. It is focusing on a fiber densification strategy, which is anticipated to enhance broadband connectivity for consumers and enterprises, alongside 5G deployments boosting the end-user experience.
With a customer-centric business model, AT&T is likely to benefit from the increased deployment of mid-band spectrum and greater fiber densification. AT&T expects to deploy mid-band spectrum to 200 million users by 2023 end and reach more than 30 million customer and business locations with fiber by the end of 2025. The extensive fiber footprint is likely to minimize its maintenance and repair costs while generating higher ARPU.
The stock has lost 4.4% in the past year compared with the industry’s decline of 8.3%.
Image Source: Zacks Investment Research
AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Key Picks
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 18.7% and delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Motorola Solutions, Inc. (MSI - Free Report) , carrying a Zacks Rank #2, delivered an earnings surprise of 5.62%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 5.58%.
Motorola provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure service providers. It develops and services both analog and digital two-way radio, voice and data communications products and systems for private networks, wireless broadband systems and end-to-end enterprise mobility solutions to a wide range of enterprise markets.
Ubiquiti Inc. (UI - Free Report) , carrying a Zacks Rank #2, is another key pick in the broader industry. Headquartered in New York, it offers a comprehensive portfolio of networking products and solutions for service providers and enterprises at disruptive prices.
Ubiquiti boasts a proprietary network communication platform that is well-equipped to meet end-market customer needs. In addition, it is committed to reducing operational costs by using a self-sustaining mechanism for rapid product support and dissemination of information by leveraging the strength of the Ubiquiti Community.