T Stock: Why 2023 Free Cash Flow Guidance Will Move Shares

What will move T stock up or down when AT&T earnings for the December quarter are released Wednesday? There’s general agreement on Wall Street it’ll be AT&T‘s (T) 2023 free cash flow outlook.

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“FCF is the main issue,” SVB MoffettNathanson analyst Craig Moffett told Investor’s Business Daily via email. “And yes, consensus already expects a slight miss for 2022.”

AT&T’s free cash flow growth supports its dividend. T stock provides shareholders with a 5.8% dividend yield.

In addition, AT&T has forecast $14 billion in free cash flow in 2022, down 47% from a year earlier. The drop is tied to the April 2022 spinoff of WarnerMedia, and the DirecTV divestiture in 2021.

AT&T: ‘Bridge The Chasm’?

T stock analysts polled by FactSet currently estimate full-year 2022 free cash flow at $13.78 billion, below AT&T’s guidance. AT&T earnings are due before the market open on Wednesday.

But it’s AT&T’s 2023 outlook for free cash flow that matters most to Wall Street. Analysts estimate free cash flow of $16.2 billion, according to FactSet.

“We think AT&T needs to bridge the chasm between its operating performance and free cash flow expectations,” Bank of America analyst David Barden said in a note to clients. “The former is improving and understood by investors, while the latter has been lowered and the bridge to 2023 FCF expectations has been cloaked in mystery.”

Moffett has a similar view.

“The problem here is that AT&T’s calculation of FCF borders on unintelligible, with puts and takes being almost arbitrarily added and excluded, so no one really knows yet what they will and won’t include in their guidance for free cash flow for 2023,” Moffett said in the email.

T Stock: Outlook Surprise Coming?

At Wells Fargo, analyst Eric Luebchow upgraded T stock to outperform in early January. He says AT&T could surprise with 2023 FCF guidance above expectations.

“The biggest debate is really around AT&T FCF outlook for 2023, where $16 billion-plus appears to be the bogey,” Luebchow said in a note. He added that some Wall Street analysts expect AT&T’s wireless subscriber grow to slow in 2023 after two years of market share gains.

In the December quarter, AT&T will add 620,000 wireless postpaid phone subscribers vs. 884,000 a year earlier, analysts polled by FactSet estimate.

In the AT&T earnings report, analysts estimate profit of 57 cents, down 3% from a year earlier. Revenue is expected to fall 23% to $31.4 billion amid the divestiture of WarnerMedia, which merged with Discovery.

Wireless Growth Key To Free Cash Flow

Meanwhile, Goldman Sachs in early January called AT&T a “favorite value stock” among telecom companies. Goldman Sachs estimates AT&T’s 2023 FCF growth at 20%, well above consensus.

In the September quarter, AT&T added 708,000 postpaid wireless postpaid phone customers vs. estimates for a 552,000 gain. Wireless service revenue rose 5.4% to $15.3 billion, edging by estimates of $15.2 billion.

Moffett also says wireless growth is key to the debate over T stock.

“AT&T’s free-cash-flow trajectory really comes down to one’s view of AT&T’s competitiveness in wireless,” he said. “They have maintained relatively good subscriber growth, but only by being extremely aggressive with costly promotions. That only works until it doesn’t, or until competitors match those promotions, as they are starting to do now.”

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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