23 October 2020 by jbchevrel
AT&T (T) is a diversified, global leader in TMT. It distributes content through brands like HBO, Warner Bros, and CNN. AT&T provides 100m+ US consumers with TV, mobile and broadband. AT&T 5y CDS was 65bp pre-COVID peaked 300bp and is now 86bp. Yesterday, AT&T reported Q3 numbers. Revenue $42.3b (vs $41.7b exp.) Profit $2.8b -24% YOY (close to S&P consensus -21%) thanks to good subscriber momentum in their market focus areas of connectivity and software-based entertainment. Not a lot changes for the credit picture. Cash from Operating Activities was +$12.1b, Capital Expenditures were -$3.9b. So Free Cash Flow was +$8.3b for Q3. Net Debt declined by -$2.9b, such that Net Leverage was 2.7x at the end of Q3. The company expects full-year 2020 FCF of at least +$26b, despite a dividend payout ratio in the high 50%s. The AT&T shareholder is already down roughly -30% since COVID kicked in, therefore the management seems committed to preserve dividend payout while reducing debt. The low volatility in earnings makes the market confident that AT&T can sustain a 2.7x leverage, in the current environment. At 88bp, this BBB/A- credit is in the 20%ile of the widest CDX IG s35 constituents, +26bp wider than CDX IG s35 fair value.