BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RAING SINCE 04/23/2015 ARGE PRICE $40.17 BUSINESS DESCRIPION A& Inc. provides telecommunications services in the United States and internationally. he company operates through two segments, Wireless and Wireline. SOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 8.01 2.20 1.08 GROWH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 18.61 6.06 2.99 Net Income -4.35-69.11 6.47 EPS -16.67-71.61 6.87 REURN ON EQUIY (%) Ind Avg S&P 500 Q3 2015 4.40 41.05 12.91 Q3 2014 18.73 40.56 14.28 Q3 2013 8.72 7.09 13.75 P/E COMPARISON Sector: elecom Sub-Industry: Integrated elecommunication Services Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History BUY HOLD BUY Volume in Millions 2014 2015 COMPUSA for Price and Volume, hestreet Ratings, Inc. for Rating History ARGE PRICE $40.17 RECOMMENDAION We rate () a BUY. his is driven by some important positives, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. he company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity. 41 40 39 38 37 36 35 34 33 32 31 250 0 37.00 28.30 Ind Avg EPS ANALYSIS¹ ($) Q1 0.67 Q2 0.71 Q3 0.72 Q4 1.31 Q1 0.70 Q2 0.70 Q3 0.60 Q4-0.77 21.75 S&P 500 Q1 0.61 Q2 0.60 Q3 0.50 HIGHLIGHS 's revenue growth has slightly outpaced the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 18.6%. his growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. Net operating cash flow has increased to $10,797.00 million or 23.76% when compared to the same quarter last year. In addition, has also modestly surpassed the industry average cash flow growth rate of 16.27%. he gross profit margin for is rather high; currently it is at 55.43%. Regardless of 's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.65% trails the industry average. 2013 2014 NA = not available NM = not meaningful 2015 1 Compustat fiscal year convention is used for all fundamental data items. 's earnings per share declined by 16.7% in the most recent quarter compared to the same quarter a year ago. he company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, reported lower earnings of $1.23 versus $3.41 in the prior year. his year, the market expects an improvement in earnings ($2.71 versus $1.23). After a year of stock price fluctuations, the net result is that 's price has not changed very much. Although its earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. he stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWH AND EBIDA MARGIN* Revenue Growth (M) -25% 10% N EF UNFAVORABLE 27.5% B VZ CHU EBIDA Margin (M) BCE CH I.A I FAVORABLE LK 52.5% Companies with higher EBIDA margins and revenue growth rates are outperforming companies with lower EBIDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $22.7 Billion and $214 Billion. Companies with NA or NM values do not appear. *EBIDA Earnings Before Interest, axes, Depreciation and Amortization. REVENUE GROWH AND EARNINGS YIELD Revenue Growth (M) -25% 10% I UNFAVORABLE 2% I.A Earnings Yield (M) CHU EF VZ LK CH N B FAVORABLE BCE Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -21.6% and 6.1%. Companies with NA or NM values do not appear. 8% INDUSRY ANALYSIS he US diversified telecommunications services industry provides communications and high-density data transmission through high bandwidth/fiber-optic cable networks. he industry is classified into two sub-categories, alternative carriers and integrated telecommunication services. here are three parallel markets, terrestrial networks, cellular networks, and satellite networks, which include major players such as A& (), Verizon Communications (VZ), and Centurylink (CL). he industry is mature, cyclical, capital intensive, and undergoing consolidation and globalization. he recent M&A trend, ongoing regulatory liberalization, and privatization have fueled competition in local telephone services markets and expansion into domestic and cross-border markets. he industry has high entry barriers due to the dominance of well-established players, brand identities, high levels of automation, and distribution challenges. Growth is driven by technological advances and demand for integrated high bandwidth data transmission. Most companies are seeking new market segments, such as mobile communications, digital data transmission, and value added services. he changing pace of technology implementation and convergence of cable network technologies through bundling have redefined the competitive landscape. However, the recent launch of cable telephony, VoIP, and improved wireless and cellular technologies pose a threat to traditional wired telecommunication services. he US Federal Government, through the Communications Act of 1934, established the Federal Communications Commission to regulate and retain jurisdiction over use of the radio spectrum, interstate telecommunications, and international communication that originates or terminates in the US. Deregulation has occurred since the break-up of A& in 1982 and rendered the market more competitive. he industry is regulated by the US elecommunications Act of 1996 and 2005, which aims to abolish cross-market barriers and prohibit dominant players from operating within one communications industry. Industry outlook is due to a significant drop in subscriber additions, shifting consumer preferences, and a shift towards wireless connections. he government s $7.2 billion stimulus package provides $4.7 billion to establish a Broadband echnology Opportunities Program at NIA for wireline, wireless, and cable companies, and provides $2.5 billion for broadband grant, loan, and loan guarantee programs at to be used by rural wireline telecoms and satellite providers. Service upgrades, which are supported by advanced high-end 3G and 4G networks, introduction of low-cost integrated IP voice and data networks, and the deregulation of the industry, are likely to revive the industry from its present downturn. PEER GROUP: Diversified elecommunication Services Recent Market Price/ Net Sales Net Income icker Company Name Price ($) Cap ($M) Earnings M ($M) M ($M) 34.78 213,967 37.00 139,121.00 5,362.00 N NIPPON ELEGRAPH & ELEPHONE 40.13 84,128 17.68 90,137.32 4,820.40 B B GROUP PLC 35.31 59,079 17.88 25,574.05 3,297.78 EF ELEFONICA SA 11.38 56,618 24.74 52,445.75 5,142.64 BCE BCE INC 39.09 33,197 12.90 21,439.00 2,727.00 CHU CHINA UNICOM (HONG KONG) LD 12.35 29,575 20.58 44,142.04 1,509.21 CH CHUNGHWA ELECOM LD 30.26 23,474 19.15 6,827.42 1,229.77 I ELECOM IALIA SPA 12.76 23,356 49.08 22,907.44 793.84 I.A ELECOM IALIA SPA 10.17 23,356 39.12 22,907.44 793.84 LK ELEKOMUNIKASI INDONESIA 45.01 22,685 21.33 7,017.78 1,032.27 VZ VERIZON COMMUNICAIONS INC 46.95 191,034 18.71 130,558.00 10,257.00 he peer group comparison is based on Major Integrated elecommunication Services companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPION A& Inc. provides telecommunications services in the United States and internationally. he company operates through two segments, Wireless and Wireline. he Wireless segment offers data and voice services, including local, long-distance, and network access services, as well as roaming services to youth, family, professionals, small businesses, government, and business customers. his segment also sells various handsets, wirelessly enabled computers, and personal computer wireless data cards through its owned stores, agents, or third-party retail stores; and accessories, such as carrying cases, hands-free devices, batteries, battery chargers, and other items to consumers, as well as to agents and third-party distributors. As of December 31, 2014, it served approximately 120 million wireless subscribers. he Wireline segment provides switched and dedicated transport, DSL Internet access, network integration, managed Web-hosting, packet, and enterprise networking services, as well as intrastate, interstate, and international wholesale networking capacity to other service providers. It also offers voice services consisting of local and long-distance services; and wholesale switched access services to other service providers, as well as sells customer premises equipment and other equipment comprising basic telephones and private digital switching systems. his segment served 9 million retail consumer access lines, 9 million retail business access lines, and 2 million wholesale access lines. he company was formerly known as SBC Communications Inc. and changed its name to A& Inc. in November 2005. A& Inc. was founded in 1983 and is based in Dallas, exas. 208 South Akard Street Dallas, X 75202 USA Phone: 210-821-4105 http://www.att.com Employees: 244000 SOCK-A-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. o gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACOR SCORE Growth 3.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 50% of the stocks we rate. otal Return 4.5 out of 5 stars Measures the historical price movement of the stock. he stock performance of this company has beaten 80% of the companies we cover. Efficiency 2.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. he company has generated more income per dollar of capital than 40% of the companies we review. Price volatility 3.0 out of 5 stars Measures the volatility of the company's stock price historically. he stock is less volatile than 50% of the stocks we monitor. Solvency 5.0 out of 5 stars Measures the solvency of the company based on several ratios. he company is more solvent than 90% of the companies we analyze. Income 5.0 out of 5 stars Measures dividend yield and payouts to shareholders. he company's dividend is higher than 90% of the companies we track. HESREE RAINGS RESEARCH MEHODOLOGY hestreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. hese and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. he result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by homson Financial 0.63 Q4 FY15 2.71 E 2015(E) 2.85 E 2016(E) INCOME SAEMEN Net Sales ($mil) 39,091.00 32,957.00 EBIDA ($mil) 12,560.00 10,146.00 EBI ($mil) 6,295.00 5,607.00 Net Income ($mil) 2,994.00 3,130.00 FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2015 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased. A& INC has very liquidity. Currently, the Quick Ratio is 0.47 which clearly shows a lack of ability to cover short-term cash needs. he company's liquidity has increased from the same period last year, indicating improving cash flow. At the same time, stockholders' equity ("net worth") has greatly increased by 31.54% from the same quarter last year. he key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the near future. SOCKS O BUY: hestreet Quant Ratings has identified a handful of stocks that can potentially RIPLE in the next 12-months. o learn more visit www.hestreetratings.com. BALANCE SHEE Cash & Equiv. ($mil) 6,295.00 4,439.00 otal Assets ($mil) 399,989.00 287,939.00 otal Debt ($mil) 126,930.00 75,625.00 Equity ($mil) 121,824.00 92,613.00 PROFIABILIY Gross Profit Margin 55.43% 56.50% EBIDA Margin 32.13% 30.78% Operating Margin 16.10% 17.01% Sales urnover 0.46 Return on Assets 1.34% 6.02% Return on Equity 4.40% 18.73% DEB Current Ratio 0.73 0.65 Debt/Capital 0.51 0.45 Interest Expense 1,373.00 1,076.00 Interest Coverage 4.58 5.21 SHARE DAA Shares outstanding (mil) 6,152 5,185 Div / share 0.47 0.46 EPS 0.50 0.60 Book value / share 19.80 17.86 Institutional Own % NA NA Avg Daily Volume 24,472,832 31,785,806 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RAINGS HISORY Our rating for has not changed since 4/23/2015. As of 12/23/2015, the stock was trading at a price of which is 4.6% below its 52-week high of $36.45 and 12.3% above its 52-week low of $30.97. VALUAION BUY. his stock's P/E ratio indicates a premium compared to an average of 28.30 for the Diversified elecommunication Services industry and a significant premium compared to the S&P 500 average of 21.75. o use another comparison, its price-to-book ratio of 1.76 indicates a discount versus the S&P 500 average of 2.74 and a significant discount versus the industry average of 9.60. he price-to-sales ratio is below both the S&P 500 average and the industry average, indicating a discount. 2 Year Chart BUY: $34.69 2014 HOLD: $32.68 BUY: $34.23 $38 $35 $33 MOS RECEN RAINGS CHANGES Date Price Action From o 4/23/15 $34.23 Upgrade Hold Buy 1/28/15 $32.68 Downgrade Buy Hold 12/23/13 $34.69 No Change Buy Buy Price reflects the closing price as of the date listed, if available RAINGS DEFINIIONS & DISRIBUION OF HESREE RAINGS (as of 12/23/2015) 39.42% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 31.01% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 29.57% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. Price/Earnings 37.00 Peers 28.30 Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations. is trading at a significant premium to its peers. Price/Projected Earnings 12.20 Peers 26.72 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. is trading at a significant discount to its peers. Price/Book 1.76 Peers 9.60 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its peers. Price/Sales 1.54 Peers 1.61 Average. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a valuation on par with its industry on this measurement. DISCLAIMER: Price/CashFlow 6.39 Peers 6.79 Average. he P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a valuation on par to its peers. Price to Earnings/Growth 0.29 Peers 0.39 Discount. he PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a discount to its peers. Earnings Growth lower higher -71.61 Peers -41.24 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher 6.06 Peers 0.75 Higher. A sales growth rate that exceeds the industry implies that a company is gaining market share. has a sales growth rate that significantly exceeds its peers. hestreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 he opinions and information contained herein have been obtained or derived from sources believed to be reliable, but hestreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSA Xpressfeed product from Standard &Poor's, a division of he McGraw-Hill Companies, Inc., as well as other third-party data providers. hestreet Ratings is a division of hestreet, Inc., which is a publisher. his research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by hestreet Ratings of any particular security or trading strategy or a determination by hestreet Ratings that any security or trading strategy is suitable for any specific person. o the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by hestreet, Inc.'s erms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5