By Jordan Faigen
Will you be BUYing AT&T (T) and/or DirecTV (DTV) bright and early Monday morning after the latest breaking news today?
It might be Sunday, but that isn’t stopping the telecommunications corporation, AT&T, from announcing game changing news. As reported by USA Today and Buzzfeed, AT&T has plans to announce today that they are purchasing the satellite company DirecTV. According to DIRECTV (NASDAQ:DTV) CEO Mike White, “the deal is done”. In earlier discussions, AT&T Inc. (NYSE:T) had mentioned purchasing DirecTV in “low to mid 90s” per DirecTV share, valuing the company at $50 billion. The so-called “done deal” will add DirecTV’s 20 million nationwide customers to AT&T’s U-Verse TV service of only about 5.7 million customers in only 22 states.
The deal comes at a key transition point in the telecom and cable industries. Now, video, voice and data services are combined and surround the Internet. This AT&T and DirecTV deal follows another major telecom merger of Comcast Corp. (CMCSA) and Time Warner Cable (TWC), which was announced just a few months ago.
Here’s a round up of hedge funds’ May returns
Tyro Absolute Return Fund was down 1.5% for May. The fund's main contributors in May were Super Micro Computer, which gained 1.6%, Shyft Group, which was up 1%, and GCI Liberty, which gained 1%. Detractors in May include Recro Pharma, which fell 2.6%, index shorts and hedges, which declined 2%, and DXC Technology, which was Read More
Shares of AT&T opened at $36.55 on Friday, May 16. The company has a 1-year high of $37.47 and a 1-year low of $31.74. The stock’s daily moving average is $148.50 and has a 50-day moving average of $35.63. The market cap for AT&T is $190.68 billion and its P/E ratio is 10.71.
Shares of DirecTV opened at $85.30 on Friday May 16. The company has a 1-year high of $89.46 and a 1-year low of $57.05. The stock has a 50 day moving average of $79.38. And the market cap for DirecTV is $44.04 billion and its P/E ratio is 16.98.
On May 12, Motley Fool analyst Travis Hoium recommended BUY AT&T, noting that he thinks AT&T is “one of the best dividends on the market”. Hoium also noted that, “even the rumored effort to buy DirecTV could add to the company’s growth and profitability, stabilizing its dividend further.” Hoium has a +4.6% average return per recommendation and a 54% success rate of recommendations.
Fellow Motley Fool contributor Piyush Arora also recommended BUY AT&T on May 12, noting the importance of investing in a high-yielding, large-cap companies. Piyush argued, “Over the last 12 months, AT&T Inc. (NYSE:T) distributed about $9.59 billion in dividends and generated about $12.99 billion in free cash flow, or FCF. This equates to a healthy trailing 12-month dividend-to-FCF ratio of 73.8%, which suggests that there is ample cushioning for further dividend hikes.” Piyush has a -0.4% average return per recommendation and a 25% success rate.
Looking at the latest DirecTV recommendations, Wunderlich analyst Matthew Harrigan reiterated his BUY DirecTV rating and $97.00 price target on May 13. Regarding the purchase by AT&T, Harrigan noted, “DirecTV offers AT&T Inc. (NYSE:T) a premium national video solution along with premium current customer demographics that support 4K TV while allowing legacy AT&T capabilities to focus on broadband. Timing for a deal is also favorable as the government reviews Comcast’s (CMCSA-$50.65, Buy) proposed acquisition of Time Warner Cable (TWC-$138.14, Hold). We feel that it is unlikely that the latter deal could pass regulatory muster without the DTV deal also being approved.” Harrigan has a +5.0% average return per recommendation and a 63% success rate of recommendations.
On the other hand, Barclay’s analyst Kannan Venkateshwar reiterated his HOLD DirecTV rating. Venkateshwar noted, “In the case of a potential AT&T Inc. (NYSE:T)-DTV transaction, whatever programming cost benefit DTV receives on account of its large scale given its 20mm subscriber base in the US would only apply to ~6mm AT&T U-verse subscribers. While this would offer some benefits (contingent also on the deal structure and the legal entities that the subscribers are assigned to post deal), we do not believe the degree of synergies is nearly as meaningful as a DTV-DISH deal or a Comcast-TWC deal.” Venkateshwar has a +6.8% average return per recommendation and a 79% success rate of recommendations.
Jordan Faigen covers financial markets and the latest stock market news. She can be reached at [email protected]