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Take Another Look at Old Ma Bell

From its humble beginnings as the old Southwestern Bell, AT&T Inc (NYSE: T) emerged from the competitive free- for-all following 1996 deregulation as one of America’s big two telecoms. And revenues, earnings and dividends have risen consistently ever since, notes Roger Conrad, Conrad’s Utility Investor,

Nonetheless, the stock sells for less than 9 times projected 2019 earnings per share. Its growing yield is north of 6 percent, despite profit and free cash flow coverage of better than 2-to-1. Insiders have added an impressive 15.4 percent to their holdings over the past six months. Wall Street analyst opinion, however, remains decidedly split. And almost any news over the past year has triggered a cacophony of opinion, with accompanying up and down volatility.

We expect a more favorable story going forward. The company is reportedly shopping the US operations of its DirecTV unit. Basically tangential to overall earnings, the pay television division has consistently lost customers. Dumping it would focus attention on thriving areas of AT&T’s business.

One good example is the content operation of the former Time Warner Inc. The final season of HBO’s “Game of Thrones” didn’t satisfy all fans. But it was a huge success and left the door wide open for related productions. And President Trump’s repeated threats regarding the company’s CNN network have only attracted viewers, just as they have to Comcast Corp’s (Nasdaq: CMCSA) MSNBC network.

Time Warner’s results provided a big lift to AT&T’s first quarter earnings and should do even better the rest of the year. In wireless, the company scored big in the Federal Communications Commission 5-G spectrum auction last month.

Developed with industry leading $45 billion capital spending the next two years, that ensures the company will stay at the front of deployment, even as expands profitability in 4-G by cutting churn and boosting data sales.

After all CAPEX and dividends, AT&T still projects to generate $12 to $13 billion in annual free cash to pay down debt. That’s the single biggest selling point for this stock, one of only a handful of secure winners in the rapidly consolidating telecom sector. Buy up to 38.

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