T Optimizes Portfolio With Strategic Divestiture: Will it Fuel Growth?
AT&T ventured into the media business with the buyout of DIRECTV in 2015. It also acquired WarnerMedia in 2018. However, its venture into the media business was plagued by a constant decline in subscriptions. Continued cord-cutting remains a perennial challenge as consumers increasingly cancel pay TV packages for cheaper streaming options from Netflix, Amazon, Hulu and other services. Several factors, such as easy multi-device access and personalized recommendations, gave customers more transparency and control, making them a more lucrative choice for new era audiences. DIRECTV was playing catch-up with Netflix, Amazon and others and constantly losing subscribers in the process.
Hence, DIRECTV became a non-core asset for AT&T. The acquisition led to higher debt and also diverted capital from its core business of 5G wireless and fiber network. Hence, the offloading of DIRECTV is a prudent decision from AT&T's management. It will allow AT&T to focus on its primary growth engines. The company has received $19 billion through prior TPG distributions and will also receive an additional $7.6 billion by 2029. The cash infusion is set to lower the debt burden and improve liquidity. AT&T is placing strong emphasis on strengthening its 5G portfolio and also aggressively pushing for fiber network expansion nationwide. The gain from divestiture will likely help in accelerating such initiatives.
AT&T faces stiff competition from other major players, such as Charter Communications, Inc. CHTR and Comcast Corporation CMCSA, on multiple fronts, such as broadband Internet, wireless services, enterprise and B2B services. Both Charter and Comcast and steadily investing to expand their network infrastructure. Charter's Spectrum Mobile has expanded 5G coverage nationwide. As of March 31, 2025, the company served 10.4 million mobile lines. In an attempt to stay competitive, Comcast has ventured into the U.S. wireless industry with the nationwide rollout of its wireless services under the Xfinity Mobile brand.
However, both companies are struggling to retain subscribers in the cable TV and video content front. Online video streaming service providers, including Netflix, Hulu, HBO, Amazon Prime and YouTube, have become a significant threat to cable TV operators due to their extremely cheap source of TV programming and solid content.
T's Price Performance, Valuation and Estimates
AT&T has gained 51.8% over the past year compared with the Wireless National industry's growth of 26.7%.
Going by the price/book ratio, the company's shares currently trade at 13.27 forward earnings, lower than 13.53 of the industry but above its mean of 10.67.
Image Source: Zacks Investment Research
Earnings estimates for 2025 and 2026 have remained unchanged for the past 60 days.
AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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