After weak 2013-2015 years for AT&T shareholders we saw a significant rally in 2016. Now shares are at all-time high, which is “by definition” not a story for me. Anyway let’s have a look, as maybe some valuable insights will be found.

First of all let’s look on valuation:

P/E = 14

EV/EBITDA = 7.0

Dividend yield 4.72%

Comparing to my post from the end of 2015 not a lot has changed though share price is significantly higher!

Dividend yield 5.4% (!!)

P/E = 12.9

EV/EBITDA = 7.1

How is that possible?

Well it is all the matter of time. Market cap is $250b vs $215b, so up by 16%. Moreover shareholders earned 5% dividend. With elapse of time cash generating companies should become more and more expensive. Also in this case some multiple expansion took place on P/E. Altogether company was cheap and there was some story to be played (DirecTV acquisition) and investors were buying shares. I think that similar story can be with Target.

Look on financials of AT&T

image001

Well:

  • Business Solutions – flat/declining
  • Entertainment Group – declining
  • Consumer Mobility – growth
  • International – not important

Together there is still no growth and this is why company is traded with low multiples. Sure, in long term dividend yield is attractive (vs government bonds) and company is delivering strong cash flow + long term proven quality.

 

I see no story to buy shares of AT&T. Business is declining, shares are high. OK, you can say that Target is also not growing, but keep in mind that Target is increasing EPS (due to buybacks, but still it is an increase) sentiment is more negative on Target, business is not declining as fast as AT&T. Both cases are risky in long term, but in my opinion Target can deliver more value and with this prices I am seriously consider buying (though shares are under strong pressure).

 

Disclaimer T – no position