Top Trade Alert – July 21st, 2022 – AT&

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    AT&T Chart vs Peers

    T – Absolutely a good time to buy. Free Cash Flow is $14Bn instead of $16Bn and the stock drops to $140Bn?

    The $2B decline is due to longer collection times for customers, higher costs of adding subscribers and continued pressure in its business services unit. AT&T (T) said that $10B of its free cash flow will come in the second half of this year.

    There’s no update to the company’s 2023 cash flow forecast for $20B, Desroches said. Pressed on confidence in that number, Stankey said they feel “really good” about the mechanical things improving cash flow yields, but that the speed and magnitude of the inflation jump brings uncertainty, and “without seeing how the Fed reacts, how fast we see the curve starting to abate on the inflation side, trying to make that pick right now just feels like it’s a bit of an overreaction.”

    The company has navigated that difficult reality effectively so far, he says, but “not sufficient to cover all inflationary impacts … We estimate those to be more than $1B above the elevated cost expectations embedded into our outlooks.”

    So, in the 2nd half, they move to a $20Bn run rate but bad news now is SELLSELLSELL?

    For the second-quarter, AT&T (T) earned 65 cents a share on $29.6B in revenue, compared to expectations of 62 cents a share and $29.47B in sales. The company added 800,000 postpaid phone subscribers, making it the best second-quarter in more than 10 years. It also added more than 300,000 Fiber subscribers during the period.

    Traders are idiots.

    The company said net debt fell by $37B compared to the first-quarter.

    AT&T (T) increased its full-year revenue guidance for mobility services to be between 4.5% and 5%, and added that it also expects to generate more than $4B in cost savings by the end of the year.

    We already loaded up at $18 but it’s a good time for a Top Trade now that you can buy it again at $18.50. The dividend is $1.11 and there’s no threat there so, let’s say you have $500,000 of retirement savings and you would like to collect $20,000 a year in T dividends:

      • Buy 5,000 shares of T for $18.50 ($92,500)
      • Sell 50 T 2024 $17 calls for $3 ($15,000)
      • Sell 50 T 2024 $20 puts for $3.40 ($17,000)

    The initial outlay is $60,500 or $12.10 per share, about 1/3 off the current price. If assigned 5,000 more at $20 ($100,000) then it’s $160,500 for 10,000 shares or about $16.05 per share – that is the “Worst Case” and, meanwhile, you collect $5,550 in dividends while you wait.

    So if T is below $20 in Jan, 2024, we get 5,000 more shares and we’re in for $16.05 and we repeat the cycle and knock $5 more off the net ($11) and then buy 10,000 more for maybe $15 ($150,000) and the average on 20,000 shares is $13 ($260,000) and we can stop there and collect $22,200 a year in dividends or we can get fancy selling more puts and calls to boost it.

    If T is over $20, we get $85,000 back for a profit of $24,500 (plus dividends) and we start the cycle again. As long as you’re not retiring in 6 years – we’ll get there!

    On the whole, we either get 5,000 shares closer to our ownership goal (at a 33% discount) in each flat or down cycle or we make $25,000 in an up cycle. If we “accidentally” make $25,000 over 3 cycles (6 years) we’ll still only have 5,000 shares but those shares will be completely free so, whatever the price of T is, we can then buy $10,000 shares at net 50% off AND get another 33% discount for the next 10,000.

    It’s a nice, simple strategy for building a retirement portfolio.