Tonight, we're getting a fresh update on results for telecom behemoth AT&T (NYSE:T) as it prepares to report fourth-quarter and full-year results for fiscal year 2006 in the morning. Like a bird on the wire, we're tapping into the buzz around the company today.

What analysts say:

  • Buy, sell, or waffle? Twenty-eight Wall Street analysts follow AT&T these days, according to Reuters Estimates. Twenty of them recommend that we buy the stock, three want to sell, and the remaining five are simply holding. It's also a three-star stock in our Motley Fool CAPS system, based on the input from more than 800 players.

  • Revenues. Sales should increase from $13 billion last year to $20.8 billion this time -- a whopping 60% gain.

  • Earnings. Net income is expected to grow $0.13 per share over last year, to $0.59 per share.

What management says:
In the latest earnings call, CFO Rick Lindner expounded on AT&T's financial strength and the possibilities that open up when you have strong cash flows:

"The combination of the earnings growth that we're seeing, combined with the projections and prospects for growing free cash flow after dividends, gives us a lot of flexibility going forward. In terms of how we'll use that cash, first of all, we remain committed to the share repurchase program that we outlined for you at the time we announced the BellSouth transaction. As we look at the market with where our stock price is, where our dividend yield is, I think it certainly points us toward being able to support continued dividend growth and moving in a direction more towards dividend growth as we go forward."

What management does:
Please excuse the data dump, but I think each table tells a story. Starting with margins, we see a remarkably stable environment across the board, particularly in the light of the growth figures. Contributions from the SBC/AT&T merger to these trailing figures really kicked in by last summer, giving revenues a serious boost. But margins stayed flat, so dollar earnings really took off.

The returns on capital, assets, and equity show a different side of the same story. The post-merger company was able to reduce redundant functions and sell off surplus assets. The result is a leaner capital structure than the two companies had on their own, and a serious improvement in these management efficiency ratings.

Margins

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Gross

56.8%

57.1%

56.7%

56.0%

56.1%

56.0%

Oper.

15.4%

16.4%

18.2%

18.2%

19.1%

19.6%

Net

11.3%

9.3%

10.9%

10.8%

11.2%

11.8%

FCF/Revenue

36.3%

36.7%

41.6%

41.6%

40.8%

38.5%


Efficiency Ratios

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

ROC

6.5%

6.9%

6.5%

6.5%

8.6%

9.8%

ROA

3.8%

4.1%

3.9%

3.9%

5.2%

5.9%

ROE

9.6%

9.5%

10.1%

10.1%

12.8%

14.8%


Year-Over-Year Growth

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Revenue

2.6%

1.6%

7.5%

7.5%

33.3%

46.3%

Earnings

(24.6%)

(26.3%)

(3.9%)

(3.9%)

61.2%

85.2%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
AT&T has been in an acquisitive mood for a few years, growing by leaps and bounds as it tacked on a string of former competitors. Even the AT&T name was adopted from an acquisition -- the base company here used to be known as SBC Communications. The latest development is FCC approval of the telecom giant's newest merger, an $86 billion megadeal with BellSouth. At this rate, the Baby Bells are turning back into the Ma Bell of old -- though our enforcers of anticompetitive rules presumably won't let it go quite that far.

The mergers do make economic sense, since agglomeration brings new efficiencies and lower overhead costs in general. It's a tricky balancing act between corporate efficiencies and consumer choice, and I don't envy the FCC for having to draw the line somewhere. Whatever the final decision is, there's bound to be plenty of criticism from both sides of the argument.

Apart from those growth-by-acquisition plans, AT&T is investing in "triple play" infrastructure, laying miles and miles of fiber optic networks right up to customers' homes. Verizon (NYSE:VZ) is doing the same thing, only at a faster rate, and so are cable companies like Time Warner (NYSE:TWX) and Comcast (NASDAQ:CMCSA). It comes down to an epic showdown between the cable and phone industries, each pushing voice, video, and data streams over its network technology of choice. Who will win? Joe Sixpack, I think, since choice and competition often drive lower prices and better service.

Competitors:

  • Verizon
  • Sprint (NYSE:S)
  • Comcast
  • Cablevision Systems (NYSE:CVC)
  • Qwest Communications (NYSE:Q)

Time Warner is a current Motley Fool Stock Advisor recommendation, and AT&T a former one. Read all about it with a free 30-day trial pass.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure always connects.