AT&T is in trouble and investors should unload T-share
AT&T (NYSE: T) continues to face strong pressure on several fronts and the long-term outlook for the company looks particularly negative. Accordingly, I recommend that investors sell the T share in its recent strength. Source: Jonathan Weiss / Shutterstock Although AT&T reported better than expected first quarter results on April 22, driven by the strength of its mobility business, the latter unit will likely face significant margin pressures and / or to market share losses as inflation heats up. Large debt and accelerating cord cuts are also likely to push down the shares of the telecommunications company over time. Finally, in the long term, the company’s broadband unit could be hit by fierce competition from Elon Musk’s Starlink service. Pressures on Mobility Margins Following AT & T’s first quarter results, research firm MoffettNathanson said the company was able to continue to offer attractive discounts to its wireless customers. But in the face of rising inflation, the company will likely have the uncomfortable choice of reducing those discounts, which could result in significant market share losses or significantly lower its wireless profit margins. Additionally, the unit may have been boosted by the novel coronavirus pandemic, as many consumers likely spent less on experiences and more on computer hardware, including cellphones and tablets. This trend, of course, is expected to fade as the economy reopens. Debt, Cord Cut, and Advertising Revenue At the end of the first quarter, AT&T had a whopping $ 169 billion in debt, and its net debt was 3.1 times its EBITDA, excluding certain items. There are indications that the company may have difficulty repaying its debt in the future. And if AT&T has to cut its dividend (stocks have a gigantic 6.6% forward dividend yield) in order to pay off its debt, the T share should dive sharply. 7 Stocks To Buy Now With All Eyes On Crypto The cord cut continues to be a problem for AT&T, as its premium video subscribers fell 3 million last year and 620,000 last quarter. And according to S&P, consistent with previous predictions I made, cord cutting is expected to generally pick up speed in the future. Revenue for the company’s Warner Media unit jumped 9.8% year-on-year as its advertising sales jumped 18.5% year-on-year amid the trend of economic reopening. While the reopening continues to boost ad revenue in the short to medium term, I believe that in the long run, inflation can cause the company’s ad revenue to drop significantly. Specifically, as companies’ profit margins shrink due to rising input costs, many may respond by reducing their advertising budgets. Potential Competition from Starlink For many years, I believed that technology companies could disrupt the somewhat outdated broadband Internet services offered by cable and telecommunications companies. So far, that hasn’t happened yet, but now Elon Musk, the man who revolutionized the automobile, is entering the business. Starlink satellite internet service, provided by Musk’s SpaceX company, has taken off (no pun intended). Although Starlink only offers internet service in limited areas at this point, by the end of this year it should be available in most countries around the world, although it is only looking to serve 5 million. of American homes at this stage. Yet, as Starlink’s technology and innovations advance, I believe the capacity of the service will increase and its price will decrease. Given that AT&T Fiber added a net total of 235,000 subscribers in the last quarter, competition from Starlink would likely pose a serious problem for AT&T and T stocks. The Bottom Line on T Stock AT&T faces a range of threats, including pressure on margins, cord cuts, inflation and massive debt. In addition, the company expects its revenues to increase by only 1% this year. In view of these points, investors should sell T shares. As of the publication date, Larry Ramer had (neither directly nor indirectly) any other positions in the securities mentioned in this article. Larry Ramer has been researching and writing articles on US equities for 14 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing articles for InvestorPlace in 2015. Some of his highly successful contrarian picks include GE, Solar Stocks, and Snap. You can reach him on StockTwits at @larryramer. More from InvestorPlace Why Everyone Is Investing in 5G, It’s All Wrong It doesn’t matter if you have $ 500 in savings or $ 5 million. Do this now. Top Stock Picker Reveals His Next Potential 500% Stock Prodigy who found NIO at $ 2… Said Buy THIS Now AT&T message is sick, and investors should unload T Stock appeared first on InvestorPlace.