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Equity evaluation_AT&T_2015
- 2. Company Overview Parent Company American Telephone and Telegraph Company Category Mobile Service Provider Sector Telecommunication Ticker ‘T’ (Trades on NASDAQ) Segment Wireless and Wireline Sevices for all mobile phone users as well as Enterprises/Companies looking for network solutions Target Group Residential, Commercial and Governmental customers internationally Positioning High Speed Wireless Services through 4G and broadband and digital TV services USP Second Largest provider of mobile and fixed telephony in US
- 4. Company History Spun-off from AT&T Corp.’s (ATTC) , formerly known as SBC Communications Inc. (SBC) May 2014 2013January 1, 1984 1997 1999 2005 2006 Expanding the wireline operations as the incumbent local exchange carrier (ILEC) into a total of 13 states A new wireless brand, Aio, which offers prepaid services and devices with no annual contract. one of the subsidiaries merged with ATTC, creating one of the world’s leading telecommunications providers one of the subsidiaries merged with BellSouth Corporation(BellSouth) making AT&T the ILEC in an additional nine states. A merger agreement to acquire DIRECTV
- 5. Industry Overview • Telecommunications is a mammoth industry, comprising companies that make hardware, produce software, and provide services. • Hardware includes a vast range of products that enable communication across the entire planet, from video broadcasting satellites to telephone handsets to fiber-optic transmission cables.
- 6. Industry Overview Contd. • Services include running the switches that control the phone system, providing Internet access, and configuring private networks by which international corporations conduct business. • Software makes it all work, from sending and receiving e-mail to relaying satellite data to controlling telephone switching equipment to reducing background noise on your cell phone call.
- 7. S&P 500 Vs T: 10 years
- 8. S&P 500 Vs T 1,2 years
- 9. Industry Vs T 5 years
- 10. Industry Vs T 1 year
- 11. Industry Comparisons T S TMUS VZ Industry Market Cap: 181.19B 20.94B 27.90B 205.94B 752.36M Revenue (ttm): 132.55B 35.05B 29.56B 128.24B 1.16B Gross Margin (ttm): 0.53 0.49 0.48 0.6 0.51 EBITDA (ttm): 29.77B 8.18B 5.29B 36.78B 252.44M Operating Margin (ttm): 0.1 0.1 0.04 0.16 0.08 Net Income (ttm): 5.77B -1.36B 247.00M 9.90B N/A EPS (ttm): 1.1 -0.31 0.3 2.38 0.31 P/E (ttm): 31.65 N/A 115.12 21.2 22.78 PEG (5 yr expected): 3.1 N/A 0.86 2.22 3.03 P/S (ttm): 1.37 0.6 0.93 1.61 1.4
- 12. Liquidity Ratios 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Jan 1, 2010 Jan 1, 2011 Jan 1, 2012 Jan 1, 2013 Jan 1, 2014 AxisTitle Current Ratio Current ratio V Current ratio T 0.00 0.50 1.00 1.50 2.00 2.50 1 2 3 4 5 AxisTitle Cash Ratio Cash ratio V Cash ratio T 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Jan 1, 2010 Jan 1, 2011 Jan 1, 2012 Jan 1, 2013 Jan 1, 2014 AxisTitle Quick Ratio Quick ratio V Quick ratio T
- 14. 1. Threat of New Entrants (Low) • Huge capital required to setup the network towers. • Not profitable for new companies to enter the market. Heavily Saturated Wireless network market
- 15. (Moderately High) – More convenient – Skype, Viber, WhatsApp, Facebook, VOIPs – Offer far greater value to the consumer 2. Threat of Substitute Products or Services
- 16. (High) • No need for the International Wireless • Month to month contracts 3. Bargaining power of customers
- 17. (Moderately High) • Generate meaningful overall returns for stockholders • Devote an adequate amount of attention to each of operating units 4. Bargaining Power of Suppliers
- 18. 5. Intensity of Competitive Rivalry (High)
- 19. 1. Renowned Global Brand having over 25,000 employees globally 2. I-Phone Provider and Multiple Products and Services 3. Robust Financials in the telecom segment – Strongest Balance Sheets of any major US Telecom Company 4. Second Largest Provider of Mobile Telephony and largest fixed telephony provider in the United States 5. Has a reach in over 200 countries with their services with over 100 million customers 6. Acquisition of other telecom companies over the years have strengthened its presence globally SWOT-Strengths
- 20. 1. Competitive Telecom Segment means a limited Market Share 2. Censorship issues and Network security problems were an issue 3. Stopped offering Unlimited Data Plan SWOT- Weakness
- 21. 1. International Expansion Opportunities 2. I-Phone and I-Pad deals and ever increasing sales of Apple Products 3. Increasing smart phones market and leveraging 4G network capabilities 4. New Customers for Cloud Computing and RFID Technology SWOT-Opportunity
- 22. 1. Saturation of the US Markets and Economic Slowdown 2. Government Regulations and legal fights over IP relay problems 3. Intensified competition and Industry consolidation 4. Loss of iPhone Exclusivity 5. Price Competition within Industry pressuring Margins SWOT-Threats
- 23. CAPM • Required Rate of Return= Rf + B(Rm-Rf) • Inputs – Adjusted Beta of .58 – Risk free Rate of 2.0518% • 10 Year Treasury – Return of Market: 18.13% • Three year average of return on S&P500 • Required Rate of Return: 11.379%
- 24. Two Stage DDM • Consistent Dividends since 1988 provided strong consistent data for the model • In the DDM model we used a 5 year high growth period followed by a low growth perpetuity
- 25. Bear Expectation • Inputs • T=5 • gS= 1.6% –Revenue Growth • gL= 2.2% –Expected GDP Growth • Result : $27.609 • Weighted at 30%
- 26. Average Expectation • Inputs • T=5 • gS= 5.3% –Industry Growth Rate • gL= 2.2% –Expected GDP Growth • Result : $32.42 • Weighted at 30%
- 27. Bull Expectation • Inputs • T=5 • gS= 8.6% –Historical dividend growth Rate • gL= 5.3% –Industry Growth Rate • Result : $54.49 • Weighted at 40%
- 28. Bear-Bull-Average Spread Result Bear 27.609 Avg 32.42 Bull 54.49 Expected Value: 39.12
- 29. Recommendation Buy Recommendation Target Price : 39.81 Current Price : 34.77 Shares : 90 Current Portfolio • 120 Shares of Verizon • 90 shares of Atlantic Tele-Network Inc
Notes de l'éditeur
- Technically, telecommunications encompasses any communication over a distance, be it via telephone, television, radio, wireless network, computer network, telemetry, or other means-but traditionally, the term referred to telephone service. These days, though, all these technologies and others are converging-indeed, nowadays you can access the Internet, play videos, or track your children's movements via global positioning system (GPS) technology on your cell phone-so the lines between telecommunications and other industries like computer hardware and consumer electronics are getting blurrier all the time. Operate and maintain switching and transmission facilities to provide telecommunications services via airwaves Demand driven by Consumer income Innovative service offerings Profitability of individual companies depends on Marketing Customer service Large companies have advantages in marketing and in delivering comprehensive array of services Small companies compete by delivering economically attractive service packages to niche groups regionally
- framework to analyze level of competition within an industry and business strategy development.
- During AT&T’s early days, they faced little challenge from other competitors since they had patents and hence the Threat of new entrants was higher. But after 1890s, when the patents expired, there was an influx of new competitors, around 6000, coming into the industry. The capital requirements for starting a business in this industry are also high, because there is a huge capital required to setup the network towers. Currently, the wireless network market is also heavily saturated at 91%, so it’s not profitable for new companies to enter the market.
- The main service AT&T provides is communication and over the years, people have used different tools of communication. The direct substitute of traditional wireline telephones would be the wireless cellphone communication. With the emergence of internet, many forms of internet voice communications services have become popular like VOIPs, Skype, Viber, and Whatsapp. Even Facebook can be considered as a tool for communication. For AT&T’s other products like cable TV, the internet has become a big substitute, as people can stream TV shows, news, podcasts directly from any devices that have internet connection, hence the number of cable subscribers are also dropping.
- Previously, the telecomm industry was a monopoly with AT&T having majority of the market share, but over time, patents held by AT&T expired and US government split up AT&T into smaller companies which lead to them losing market share and increasing competition in the industry. With more competitors in the market, the customers had more option to choose from and are also price sensitive, looking for better subscription plans. The customer base has also grown from 300k subscribers to over 3 million. To try and keep consumers from subscribing to other telecomm companies, most companies have started using long term contracts that makes its beneficial for consumers to stay with the company and also increases their switching costs.
- Before the patents expired in 1890s, AT&T was the only company providing telecommunications services, but after the patents, 6000 new companies entered the market and hence the degree of competitive rivalry was high. But AT&T was still a monopoly in the industry till the 1980s when the US government and the Justice department split up AT&T into smaller companies. Currently, there are four major companies in the telecommunications industry: AT&T, Verizon, Sprint and T-Mobile. AT&T’s main rival would be Verizon, which has currently more wireless subscribers than AT&T. The wireless market is highly saturated with 91% of users already using cell phones and the only way to increase sales is by poaching clients from competitors.