Two renowned companies, AT&T (NYSE:) and IBM (NYSE:), known for their robust cash flow capabilities, are currently trading at notably low valuations. Both corporations are considered solid investment options, given the current price levels.
Recently, AT&T, a major wireless carrier, launched promotions to attract and retain customers following Apple (NASDAQ:)’s official announcement of the iPhone 15 family. The carrier is offering up to $1,000 off the iPhone 15 Pro with an eligible trade-in for customers on its Unlimited plans. Despite this aggressive promotional activity, AT&T’s CFO Pascal Desroches stated that its industry-wide promotional activity remains largely unchanged.
Desroches also confirmed AT&T’s guidance for a minimum of $16 billion in free cash flow this year, even amidst a slowdown in subscriber gains. The company plans to reduce capital spending in 2024 and beyond which could potentially increase free cash flow. AT&T’s heavy investments in its 5G and fiber networks have resulted in a surge in capital spending, expected to peak this year.
Currently valued at approximately $109 billion, AT&T’s price-to-free-cash-flow ratio stands around 6.8 based on the free cash guidance. Despite slow growth, high debt levels and potential intensification of competitive pressures if economic conditions worsen, the current valuation appears excessively pessimistic.
Meanwhile, IBM, a tech behemoth offering hardware, software, and services solutions aimed at enhancing productivity and reducing costs for customers, also presents an appealing investment opportunity. In today’s challenging economy, such solutions are likely to resonate with clients.
IBM’s cloud strategy focuses on hybrid cloud computing with its platform powered by Red Hat software. This provides customers with a pathway to modernize their infrastructure while minimizing disruption and cost control. IBM’s consulting arm further aids customers in transitioning to a hybrid cloud architecture.
Despite a slowdown in demand for certain products and services from enterprise-focused technology companies, IBM has observed that large transformation projects promising significant cost savings continue to attract customers. IBM has maintained its full-year guidance, anticipating a free cash flow of around $10.5 billion, an increase of over $1 billion from 2022. With a market capitalization of roughly $133 billion, the stock trades at approximately 12.6 times free cash flow.