One a telecom, another a retailer. Both are expected to see some bounce if consumer spending rebounds as the central bank embarks on cutting interest rates more meaningfully. So, is this an opportune moment to invest in either of the companies or do better entry points await investors?
AT&T Is a Telecom Giant (NYSE:T)
This telecommunications giant has been an established connection provider for a long time. Growth has been a function of ever more connections.
Yet, management has tried to diversify its business in the past, such as when it attempted to enter the entertainment business. AT&T acquired satellite TV provider DirecTV in 2015. Unfortunately, this venture was not successful.
AT&T saw dwindling distributions from DirecTV for quite some time. At last, in 2024, the company took the decision to exit the business, selling its entire 70% stake to private equity firm TPG.
Now, the top brass is solely focused on its core competency, which is its wireless and fiber connectivity operations in a bid to improve the company’s balance sheet.
AT&T’s stock has been popping recently. Over the past six months, T share price is up by more than 25%. Currently, it is trading above both its 100-day and 200-day moving averages, reflecting largely bullish momentum.
The strong holiday quarter was underscored by the success of AT&T’s discounted premium plans that bundle 5G mobile with high-speed fiber data services.
Management reported fourth quarterly of 482,000 postpaid phone net adds, higher than the 424,550 figure projected by the analysts, with an industry-leading postpaid phone churn of 0.85%. In the fiber business, 307,000 customers were added in the quarter, marking the 20th consecutive quarter when the net adds in this part have been 200,000 or more).
Total operating revenues went up by just about 1% from the prior year’s period to $32.30 billion, beating analysts expectations. The bottom-line figure remained flat year-over-year at $0.54 per share, on an adjusted basis, but this was, once again, eclipsing analysts forecasts.
AT&T looks to be in a good spot. The potential pool of wireless customer additions is shrinking in the U.S. so the company’s bundling strategy has been a success. The company has also started offering bill credits for network outages, which might prove effective in attracting more customers than its competitors.
Target Is a Retail Juggernaut (NYSE:TGT)
This retail giant, on the other hand, is not having the best time on Wall Street at the moment. Over the past nine months, Target’s stock has declined by more than 12%. In sharp contrast to AT&T, it is currently trading lower than its 100-day and 200-day moving averages, indicating a persistent downtrend.
In recent times, sales have been slugging as a result of a decreasing discretionary demand. Basically, after facing years and years of high inflation now, consumers have become cautious about how much they spend. Discretionary items have been placed on the chopping block as a result. The company also said that it faced higher costs related to inventory due to a short-lived port strike in October.
Target last reported its third quarterly results for fiscal 2024 and announced a year-over-year increase in its top line of 1% to $25.67 billion.
The bottom line substantially disappointed, however, with GAAP-based net income falling by 12% from the year-ago level to $854 million. On a non-GAAP per-share basis, net earnings came in at $1.85, which was also about 12% lower than the number posted in the year-ago period. Comparing those numbers to another big-box retailer, Walmart Inc. (NYSE:WMT), the dismal performance becomes even more stark.
The question is whether there is something specific to Target that is leading to the poor numbers. The company earns a majority of its sales from discretionary items like clothing and home goods, whereas Walmart earns a majority of its top line from necessary items.
Fortunately for Target, the holiday season was bountiful. The company recorded a 2.8% increase for the months of November and December in its total sales, while comparable sales grew by 2%. Black Friday and Cyber Monday promotional periods both recorded record-high sales for the period.
The holiday timeframe, coupled with the fact that the Federal Reserve is finally cutting interest rates appears to have loosened the purses of consumers, and they are spending a bit more freely than before. Target also recorded meaningful bounces in discretionary categories like toys and apparel.
AT&T vs Target Stock: Which Is Best?
Target has 28.4% upside to fair value of $174 per share whereas AT&T has 4.7% downside risk to intrinsic value of $23.10 per share.
While both companies recorded slow top line growth in the last reported quarter, the bottom-line trajectory has been marketedly different.
While AT&T has been riding a wave of promotional discounts, we’ll see if customers stick with it after the upsells kick in. Target on the other hand has more fundamental upside and appears to have most of the downside baked in already.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.