Somehow the Outlook of AT&T Stock Is Getting Even Worse

Dividend Stocks

Sometimes there isn’t actually any light at the end of the tunnel. For AT&T (NYSE:T) shareholders, that certainly seems to be the case this year. T stock continues its unrelenting slump, and there’s little cause for optimism even now.

Source: Lester Balajadia / Shutterstock.com

After falling from $33 per share this spring to less than $25 now, surely AT&T must be approaching a bargain entry point, right? There’s certainly a case to be made for that from a fundamental perspective. But you have to take a closer look before taking the plunge on AT&T’s stock.

Management’s Dire Track Record

The biggest sticking point for AT&T is its management. In recent years, AT&T has engaged in a large and almost universally unsuccessful string of M&A activity. After  attempting to build a business in Mexico. it’s a distant third place in that market. And the DirecTV acquisition caused AT&T to lose tens of billions of dollars.

Those were just an appetizer for the biggest blunder. A few years ago, AT&T bought Time Warner in an effort to build a media powerhouse. It’s unclear why AT&T’s management felt that it — a phone company — could run a media business. Anyway, AT&T made the deal, and it was a spectacular bust. AT&T’s streaming business utterly failed to launch, and now management is getting rid of it.

By doing all these deals,  AT&T weakened its balance sheet so much that the company was forced to slash its dividend which had not been lowered for many years. That move outraged its shareholders, leading to the constant selling we’ve seen for the past six months.

AT&T Attempts To Move Forward

Previously, I’d argued that the only real interest in T stock now was due to the  upcoming divestment of its media business.  AT&T decided to take that route because it seemingly realized that the media business wasn’t going to succeed under AT&T’s umbrella. So now the company is merging its media operations with those of Discovery (NASDAQ:DISCA).

In theory, that will allow AT&T to focus on its core mobile telephony business. Meanwhile, Time Warner, in combination with Discovery, might be large enough to be a serious competitor in the streaming wars.

For a minute there, folks seemed to think that Netflix (NASDAQ:NFLX) was losing its grip on consumers. However, the resounding success of Squid Game made it clear that Netflix can still serve up scintillating content. As a consequence, the B-tier streaming competitors need to up their game quickly to remain relevant.

Even Disney (NYSE:DIS) stock is slumping now amid the renewed threat from Netflix. That goes to show just how tenuous a smaller player like HBO is in this fast-moving world.

The Other Telecom Stocks Are Cheap, Too

One of the arguments you hear in favor of T stock is that the shares are on sale. The S&P 500 keeps reaching new all-time highs seemingly almost every week. Yet AT&T is down more than 21% in 2021, and it’s tumbled  30% from its 52-week high.

But it turns out that investors have been selling the shares of other telecom companies, too. Concerns about slowing demand for telecom services among consumers, the money that telecom companies are spending on infrastructure rollouts, and rising interest rates have the sector in a tailspin.

Just look at AT&T’s two major rivals. Verizon (NYSE:VZ) has slid from $62 to $50 over the past year. At its current price, Verizon trades for less than ten times its earnings. It also pays a 5.0% dividend yield. Meanwhile, T-Mobile US (NASDAQ:TMUS) has slumped from its 52-week high of $150 to $109 now. Don’t fall under the impression that you have to buy AT&T if you want exposure to the U.S. telecom space at a reasonable price.

The Verdict on T Stock

If AT&T was the only cheap stock in its sector, investors would have to give it a longer look. Its management team has been a disaster for many years now, but its core assets still clearly have value.

Fortunately, however, investors don’t have to cross that bridge. Instead of worrying about whether AT&T can turn things around, people can just buy Verizon or T-Mobile instead. AT&T has decisively and repeatedly demonstrated that it is not a good steward of shareholders’ capital. Until there’s a sign of that changing, there are better options than T stock.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Articles You May Like

Top Wall Street analysts are upbeat on these dividend stocks
3 Stocks to Buy Even in the Middle of Election Chaos 
Alphabet Earnings: Waymo’s Growth Sets GOOGL Stock on Fire
Big Tech Earnings Put AI’s Profit Potential on Full Display
The pros and cons for investors of nonstop trading as NYSE looks to go 22 hours a day