Cash Windfall Expected for AT&T

AT&T Inc. booked a $20 billion paper gain from a federal tax overhaul that will hand it about $3 billion in extra cash this year, a windfall the company plans to spend on enhancing its network. The corporate-tax overhaul, a long-held goal for Chief Executive Randall Stephenson, helped AT&T book a $19 billion profit in the fourth quarter, though its revenue slipped 0.4%.

The wireless business surprised analysts by gaining 329,000 postpaid phone customers in the latest quarter, adding to AT&T’s most valuable demographic after years of declines. The company ended the year with 141.6 million domestic wireless subscribers as it also added more customers on prepaid plans

It isn’t all roses however. AT&T heads to court in March to defend its $109 billion takeover of Time Warner Inc. The transaction looks smarter than the DirecTV deal, though we’ll get a better idea about that when Time Warner reports its own fourth-quarter earnings on Thursday. The long, drawn-out approval process has created a welcome distraction from the challenges surrounding AT&T’s Pay-Tv and wireless-services businesses. But now it needs to get the deal done.

Since the Time Warner offer was announced in October 2016, AT&T CEO Randall Stephenson and his team have been trying to sell investors on their new strategy around digital and mobile entertainment. That strategy depends on Time Warner. And as much as the company may attempt to downplay the significance of losing out on the business should the government successfully block the merger, that won’t appease wary shareholders. It doesn’t help that (slowly) rising interest rates are lessening demand for high-yielding stocks like AT&T’s. 

Yes, AT&T gained in after-market trading as the company also revealed the cash windfall it expects from tax cuts and reported a surprise gain in wireless subscribers. But make no mistake: It’s in limbo until this court case is settled. 

 

Keep those stops tight

Todd “Bubba” Horwitz