We’ve long disliked AT&T’s (T) capital-allocation decisions, including the acquisitions of DirecTV and Time Warner. With considerable skepticism around the company’s telecom and media integration strategy and fears concerning its debt load, investors have punished the shares. However, given the size of the moves AT&T has made recently and the company’s emphasis on reducing leverage, we don’t expect another costly strategic shift anytime soon. As a result, we believe the shares are now attractive for investment.
We doubt that AT&T’s transformation into a diversified media and telecom company will deliver significant strategic benefits, as we don’t believe these industries complement each other well, despite their close association. The Time Warner acquisition was the latest in a string of ill-advised capital-allocation decisions for AT&T, in our view. However, we believe AT&T’s most important segments (wireless and media) are still solid businesses on their own, and we suspect the company has now largely placed its bets, as efforts to reduce leverage are likely to preclude additional major strategic moves.
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Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.