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AT&T CFO Addresses Stockholders, Expects Growth to Continue

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Speaking at the Citi 2020 Global TMT West Conference in Las Vegas, AT&T Inc.’s T senior executive vice president and chief financial officer, John Stephens, provided business update to shareholders. AT&T is scheduled to report its fourth-quarter 2019 results on Jan 29, before the opening bell.

This Zacks Rank #3 (Hold) stock, with a market cap of nearly $286.7 billion, has impressed investors with its recent earnings streak. It topped estimates thrice in the trailing four quarters, the beat being 0.9%, on average. The Zacks Consensus Estimate for its current-year earnings has been revised 0.3% upward over the past 90 days to $3.57.

Stephens stated that AT&T has retired almost 140 million shares it issued for the Time Warner acquisition, including 80 million shares this far in 2020 under its accelerated share repurchase agreement. The telecom and media giant assumes to meet all of its 2019 commitments to stockholders.

The company’s fourth-quarter 2019 revenues are likely to reflect lower Warner Bros. theatrical revenues on a year-over-year basis. Moreover, investment in HBO Max in the fourth quarter, comprising new content production, foregone licensing revenues and platform costs, is expected to have curbed operating income by $500 million.

Stephens also reiterated AT&T’s guidance for 2020. Management projects revenues to grow between 1% and 2%, including wireless equipment revenue gains from 5G device adoption. It expects adjusted earnings per share of $3.60-$3.70. This includes HBO Max investment of $1.5-$2 billion and share retirements. While adjusted EBITDA margin is anticipated to be stable with 2019 levels, free cash flow is likely to be at $28 billion.

He continued that the company is focused on surpassing the annual 6-8% reduction in network operational costs it has achieved in recent years. To this end, AT&T has begun several cost reduction initiatives as it targets an additional 4% reduction on the back of lower labor-related costs and corporate overhead. It has already virtualized 71% of its network functions and expects to meet its target of 75% by the end of 2020.

Driven by strong execution of operational strategies, the stock has gained 29.5% compared with the industry’s growth of 13% in the past year.

Investors who are looking for solid profits in 2020 may consider some better-ranked stocks in the broader industry. These include Ubiquiti Inc. UI, Verizon Communications Inc. (VZ - Free Report) and Cogent Communications Holdings, Inc. CCOI.

While Ubiquiti sports a Zacks Rank #1 (Strong Buy), Verizon and Cogent carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ubiquiti has a long-term earnings growth expectation of 9.4%.

Verizon has a VGM Score of A. It topped earnings estimates in each of the trailing four quarters, the surprise being 2.2%, on average.

Cogent has a long-term earnings growth expectation of 8%.

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