Why Did AT&T Inc. Shares Climb 23% in 2016?

2/17/17

By Daniel B. Kline, MotleyFool

AT&T (NYSE:T) saw strong gains in its share price in 2016 despite seeing its earnings per share decrease.

What happened

The company delivered diluted EPS of $2.10 as reported and $2.84 as adjusted, compared to $2.37 and $2.71 in the prior year. Despite that investors were pleased with overall subscriber growth. The company added what it described as "9.5 million wireless net adds" across the United States and Mexico in 2016 while also adding more than 200,000 customers to its streaming DirecTV Now pay-television service since its late-November launch, along with 235,000 regular DirecTV customers, and 149,000 broadband subscribers in Q4 alone.

"2016 was a transformational year for AT&T, one in which we made tremendous progress toward our goal of becoming the global leader in telecom, media and technology," said CEO Randall Stephenson in the company's Q4 earnings release. "At the same time, we performed at a high level in 2016 with growing revenues, expanding adjusted consolidated operating margins and solid adjusted earnings growth, and we hit our $1.5 billion DIRECTV cost-synergy target. We also delivered record cash from operations, which allowed us to return substantial value to investors and invest more in the U.S. economy."

T Chart

IMAGE SOURCE: YCHARTS.COM.

So what

The numbers were not all positive, but AT&T did undergo a lot of changes in 2016. Perhaps most importantly the numbers show that the company has done a good job in integrating DirecTV into its sales pitch, posting big gains in that service (somewhat at the expense of its U-verse brand, which was intentional).

Those numbers were enough to push shares in the company well higher at the end of 2016, though somewhat off its highs from the year after shares sunk post AT&T announcing plans to buy Time Warner in October. After closing 2015 at $34.41, AT&T's stock climbed to $42.53 to finish 2016, a 23% increase, according to data from S&P Global Market Intelligence.

A hand holding a smartphone inside AT&T's  flagship store in San Francisco.

AT&T'S FLAGSHIP STORE IN SAN FRANCISCO. IMAGE SOURCE: AT&T.

Now what

In 2017 AT&T faces the major wild card of whether its merger with Time Warner will be approved. That seems likely given the Republican-controlled Congress, but not certain given that President Donald Trump has made some negative remarks about the deal. In addition the company also faces negative headwinds from cord-cutting (or at least the potential of it) in its pay-television businesses and pressure from low-cost carriers in the wireless space.

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