Crisis Could Lead to Opportunity for AT&T

Keep an eye on AT&T (T).

The stock just fell out of the sky, gapping from $20.75 to $18.24.

While the company showed gains in subscriber growth, it fell flat with cash flow generation, and cut guidance for the year.

Q2 2022 adjusted EPS came in at 65 cents, which was ahead of expectations for 61 cents.  Sales of $29.6 billion which were down 33% year over year still beat estimates. Adjusted EBITDA was $10.3 billion.  While that was about $100 million short of expectations, it was still up by $175 million year over year.

As for free cash flow, the company brought in $1.4 billion in the quarter.  That was well below estimates for $4.7 billion.  “CFO Pascal Desroches told Barron’s that the shortfall was due to: Additional working capital was required to support subscriber growth—financing smartphones, for example; the year’s investment spending fell more heavily in the first half of the year; business wireline underperformed due to faster revenue declines and cost inflation; and customers are taking on average two days longer to pay their bills.”

AT&T also cut its free cash flow guidance for the year to $14 billion from $16 billion.  While it’s not expected to impact its dividend, it could mean less debt repayment for 2022.

Once the negativity has been priced in, investors may want to consider buying the drop.

At the moment, AT&T carries a dividend yield of 5.88%.