Stock Analysis on Net
Stock Analysis on Net

AT&T Inc. (NYSE:T)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

AT&T Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 11.34%
01 FCFE0 19,498
1 FCFE1 19,676 = 19,498 × (1 + 0.91%) 17,673
2 FCFE2 19,784 = 19,676 × (1 + 0.55%) 15,960
3 FCFE3 19,820 = 19,784 × (1 + 0.18%) 14,361
4 FCFE4 19,784 = 19,820 × (1 + -0.18%) 12,874
5 FCFE5 19,675 = 19,784 × (1 + -0.55%) 11,500
5 Terminal value (TV5) 164,576 = 19,675 × (1 + -0.55%) ÷ (11.34% – -0.55%) 96,190
Intrinsic value of AT&T Inc. common stock 168,557
 
Intrinsic value of AT&T Inc. common stock (per share) $23.49
Current share price $22.73

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of AT&T Inc. common stock βT 0.73
 
Required rate of return on AT&T Inc. common stock3 rT 11.34%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rT = RF + βT [E(RM) – RF]
= 4.65% + 0.73 [13.79% – 4.65%]
= 11.34%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

AT&T Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Common stock dividends 7,991 7,993 14,964 14,871 15,028
Preferred stock dividends 205 207 224 139 8
Net income (loss) attributable to AT&T 14,400 (8,524) 20,081 (5,176) 13,903
Operating revenues 122,428 120,741 168,864 171,760 181,193
Total assets 407,060 402,853 551,622 525,761 551,669
Stockholders’ equity attributable to AT&T 103,297 97,500 166,332 161,673 184,221
Financial Ratios
Retention rate1 0.44 — 0.25 — -0.08
Profit margin2 11.59% -7.23% 11.76% -3.09% 7.67%
Asset turnover3 0.30 0.30 0.31 0.33 0.33
Financial leverage4 3.94 4.13 3.32 3.25 2.99
Averages
Retention rate 0.20
Profit margin 4.14%
Asset turnover 0.31
Financial leverage 3.53
 
FCFE growth rate (g)5 0.91%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to AT&T – Common stock dividends – Preferred stock dividends) ÷ (Net income (loss) attributable to AT&T – Preferred stock dividends)
= (14,400 – 7,991 – 205) ÷ (14,400 – 205)
= 0.44

2 Profit margin = 100 × (Net income (loss) attributable to AT&T – Preferred stock dividends) ÷ Operating revenues
= 100 × (14,400 – 205) ÷ 122,428
= 11.59%

3 Asset turnover = Operating revenues ÷ Total assets
= 122,428 ÷ 407,060
= 0.30

4 Financial leverage = Total assets ÷ Stockholders’ equity attributable to AT&T
= 407,060 ÷ 103,297
= 3.94

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.20 × 4.14% × 0.31 × 3.53
= 0.91%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (163,094 × 11.34% – 19,498) ÷ (163,094 + 19,498)
= -0.55%

where:
Equity market value0 = current market value of AT&T Inc. common stock (US$ in millions)
FCFE0 = the last year AT&T Inc. free cash flow to equity (US$ in millions)
r = required rate of return on AT&T Inc. common stock

FCFE growth rate (g) forecast

AT&T Inc., H-model

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Year Value gt
1 g1 0.91%
2 g2 0.55%
3 g3 0.18%
4 g4 -0.18%
5 and thereafter g5 -0.55%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.91% + (-0.55% – 0.91%) × (2 – 1) ÷ (5 – 1)
= 0.55%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.91% + (-0.55% – 0.91%) × (3 – 1) ÷ (5 – 1)
= 0.18%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.91% + (-0.55% – 0.91%) × (4 – 1) ÷ (5 – 1)
= -0.18%