AT&T (NYSE:T) Is Its Cheaper Valuation Worth A Buy? AT&T has had a contentious couple of years with its recent partnerships and acquisitions. It is now in a position of being able to pay down its debt and improve...

AT&T (NYSE: T)'s FWD P/E ratio has fallen over the last several years and is now back down to 8.23, which is significantly below the mean FWD P/E ratio of companies in the S&P 500 at 19.44. This fact has left some investors considering adding the stock to their portfolios. Another catalyst that's leading this consideration is that the company has paid down a significant sum of its debt, approximately $40B in total, through its spinoff from WarnerMedia. The effect of this restructuring will mean that T's interest payments will reduce by roughly $1.5B, leading to a probable expansion in the company's margins and free cash flow.

The bear case for AT&T is that its stock price has slid due to the company's underperformance and the cutting of its dividend. The business has made some risky and largely unsuccessful partnerships and acquisitions in the recent past, including its agreement with Warner Media to create, at the time, a new global leader in entertainment and streaming services. The company's dividend has been slashed to $0.2775, down from $0.52 at the start of this year, which was once favored by retirees and made T a nice dividend growth stock with a yield that floated around 7%.

Where AT&T Is Heading

For the rest of the year, the company anticipates low-digit revenue growth and an adjusted EBITDA of $41 to $42 billion. This growth will be driven by headwinds that will be seen in its wireless and broadband revenues. What this means for the company's EPS is that it will grow from $2.42 to $2.46.

2023 and beyond for AT&T mirrors its optimistic outlook. The company expects to continue its single-digit growth with growth seen in wireless and broadband and an adjusted EBITDA of $43.5B to $44.5B. T's EPS is expected to grow from $2.20 to $2.60.

One of the draw cards of the company's guidance is that it intends on reaching a $20B free cash flow target by 2023. The company expects to get there through its organic growth in its connectivity business and the aforementioned reduction in interest payments through paying down its considerable debt.

How Does AT&T Compare With Verizon?

Verizon (NYSE: VZ) is one of AT&T's main competitors, so it's an interesting experiment to see how the companies stack up against each other. Verizon's market cap is considerably larger than T's with $215B compared to $151B. Over a long time period of time, Verizon has consistently beaten AT&T in terms of total return. Over the last ten years, VZ returned 76.74% to investors while T returned just 38.29%. The difference in return over the last five years is even greater, as VZ returned 45.82% while T returned just 2.58%.

In terms of the company's dividends, VZ also comes out considerably on top. VZ has over 18 consecutive years of dividend growth under its belt while T has zero. VZ's FWD dividend rate currently stands at $2.56 while AT&T reports a dividend of $1.11.

Finally, the valuation metrics between T and VZ are closely similar, with both having an FWD EV/Sales of 2.91 and an FWD P/E of 10.18 for VZ and 9.57 for T. With these factors considered Verizon comes out on top for each meaningful metric.

The Bottom Line

AT&T is doing its best to detether itself from its foray into the media industry and has stated that it is committed to paying down its debt. It has initiatives in the works to improve its wireless and 5G infrastructure which will be major tailwinds for the company in the future. It may be seen as inexpensive on a relative basis to its prior performance, but when stacked against its peers such as Verizon it may be seen as a less attractive option when using some important ratios.