AT&T’s Slow and Steady Growth Could Provide Good Returns
Value investing has suddenly become in vogue amidst the current turmoil in the markets. Investors have been dumping high-growth stocks in droves. Even long-time favorites have seen declines of 10% or more. It is in this environment that AT&T’s (NYSE:T) stock starts to look attractive.
For the longest time, I have considered T stock to be quite undervalued. However, this value was difficult to unlock due to past mismanagement. It didn’t make sense to invest in T stock when the returns of growth stocks have been so lucrative.
But now times are changing. Growth stocks are no longer seen as attractive. The market seems to have gone into a tailspin. During this turmoil, T stock saw some volatility as well. In 2022, the stock dropped from a high of $20 to a low of $17.
But what investors need to understand is that AT&T’s business is actually quite steady and resilient. In other words, it is unlikely AT&T would have a bad enough quarter to experience a 40% drop like Teladoc (NYSE:TDOC).
Looking at the recently released quarterly earnings results show a company that is showing slow and steady growth. The headline number shows revenue decreased by 13.3% year-over-year. Digging deeper though, we can see that is mostly due to its divested businesses. Looking at strictly AT&T’s standalone revenue, the company grew revenues from $29 billion in first-quarter 2021 to $29.7 billion in Q1 2022 — a modest growth rate of 2.5%, which is normal for a long-time established business.
The growth for standalone AT&T’s adjusted operating income for the quarter was flat at around $5.8 billion. Operating income margin was down for the quarter from 26.4% to 24.3%. I believe though that AT&T can focus on improving this margin moving forward as it no longer has to deal with its media businesses.
The spin-off of WarnerMedia should allow the management of both companies to focus on doing what they do best. In my view, AT&T would only grow its income from here on out. Meanwhile T stock is offering around a 5.7% dividend. I believe that in this market environment T stock is looking pretty interesting.
On the date of publication, Joseph Nograles held a long position in T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
