Stock Analysis on Net
Stock Analysis on Net

AT&T Inc. (NYSE:T)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

AT&T Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 7.07%
01 FCFF0 26,949
1 FCFF1 21,954 = 26,949 × (1 + -18.54%) 20,505
2 FCFF2 18,727 = 21,954 × (1 + -14.70%) 16,337
3 FCFF3 16,693 = 18,727 × (1 + -10.86%) 13,602
4 FCFF4 15,522 = 16,693 × (1 + -7.02%) 11,812
5 FCFF5 15,028 = 15,522 × (1 + -3.18%) 10,681
5 Terminal value (TV5) 141,974 = 15,028 × (1 + -3.18%) ÷ (7.07% – -3.18%) 100,913
Intrinsic value of AT&T Inc. capital 173,850
Less: 5.000% Perpetual Preferred Stock, Series A (fair value) 1,008
Less: 4.750% Perpetual Preferred Stock, Series C (fair value) 1,381
Less: Debt (fair value) 132,403
Intrinsic value of AT&T Inc. common stock 39,058
 
Intrinsic value of AT&T Inc. common stock (per share) $5.46
Current share price $16.75

Based on: 10-K (reporting date: 2023-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

AT&T Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 119,809 0.47 11.20%
5.000% Perpetual Preferred Stock, Series A (fair value) 1,008 0.00 5.00%
4.750% Perpetual Preferred Stock, Series C (fair value) 1,381 0.01 4.75%
Debt (fair value) 132,403 0.52 3.36% = 4.23% × (1 – 20.50%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 7,152,792,253 × $16.75
= $119,809,270,237.75

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (21.30% + 21.00% + 20.30% + 21.00% + 18.90%) ÷ 5
= 20.50%

WACC = 7.07%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

AT&T Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 6,704 6,108 6,884 7,925 8,422
Loss from discontinued operations, net of tax — (181) — — —
Net income (loss) attributable to AT&T 14,400 (8,524) 20,081 (5,176) 13,903
 
Effective income tax rate (EITR)1 21.30% 21.00% 20.30% 21.00% 18.90%
 
Interest expense, after tax2 5,276 4,825 5,487 6,261 6,830
Add: Preferred stock dividends 205 207 224 139 8
Add: Common stock dividends 7,991 7,993 14,964 14,871 15,028
Interest expense (after tax) and dividends 13,472 13,025 20,675 21,271 21,866
 
EBIT(1 – EITR)3 19,676 (3,518) 25,568 1,085 20,733
 
Debt maturing within one year 9,477 7,467 24,630 3,470 11,838
Long-term debt, excluding maturing within one year 127,854 128,423 152,724 153,775 151,309
Stockholders’ equity attributable to AT&T 103,297 97,500 166,332 161,673 184,221
Total capital 240,628 233,390 343,686 318,918 347,368
Financial Ratios
Retention rate (RR)4 0.32 — 0.19 -18.61 -0.05
Return on invested capital (ROIC)5 8.18% -1.51% 7.44% 0.34% 5.97%
Averages
RR -4.54
ROIC 4.08%
 
FCFF growth rate (g)6 -18.54%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 6,704 × (1 – 21.30%)
= 5,276

3 EBIT(1 – EITR) = Net income (loss) attributable to AT&T – Loss from discontinued operations, net of tax + Interest expense, after tax
= 14,400 – 0 + 5,276
= 19,676

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [19,676 – 13,472] ÷ 19,676
= 0.32

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 19,676 ÷ 240,628
= 8.18%

6 g = RR × ROIC
= -4.54 × 4.08%
= -18.54%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (254,601 × 7.07% – 26,949) ÷ (254,601 + 26,949)
= -3.18%

where:

Total capital, fair value0 = current fair value of AT&T Inc. debt and equity (US$ in millions)
FCFF0 = the last year AT&T Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of AT&T Inc. capital

FCFF growth rate (g) forecast

AT&T Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -18.54%
2 g2 -14.70%
3 g3 -10.86%
4 g4 -7.02%
5 and thereafter g5 -3.18%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -18.54% + (-3.18% – -18.54%) × (2 – 1) ÷ (5 – 1)
= -14.70%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -18.54% + (-3.18% – -18.54%) × (3 – 1) ÷ (5 – 1)
= -10.86%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -18.54% + (-3.18% – -18.54%) × (4 – 1) ÷ (5 – 1)
= -7.02%