AT&T: The Two Metrics That Matter Right Now

Summary:

- AT&T's stock has underperformed the broader market over the last 1-, 3-, and 5-year periods.

- However, I believe that AT&T will perform well if management is able to show improvements to two key metrics (free cash flow and financial leverage position).

- I am long AT&T and I look forward to collecting the rich (and safe) dividend while the company's story plays out in 2019 and beyond.

2018 has been the year of change for AT&T ($T) and, to be honest, I am sure that this company's management team is looking forward to starting a new year. AT&T closed the Time Warner acquisition in 2018 (well, sort of) and its management team has consistently provided a bullish outlook but, at the end of the day, the market is not yet sold on what Mr. Randall Stephenson, CEO, and team are selling.

AT&T's stock has been a consistent under performer (i.e., the 1-, 3-, and 5-year stock performance is nothing to write home about) but, in my opinion, there are reasons to be optimistic about what 2019 may bring for this large company. There are a few things that need to fall into place - finalize the Time Warner deal, an efficient & effective 5G rollout, and get some "wins" in the streaming space - but I believe that there are two main metrics that have a material impact on the investment thesis. AT&T is (and has been) viewed as an income play, so investors should mostly be concerned about the sustainability of the dividend; therefore, I believe that investors will need to keep a close eye on the two metrics that really matter right now: (1) free cash flow metrics and (2) financial leverage.