AT&T Files For DIRECTV Latin America IPO: Debt To Decrease?

AT&T (NYSE:T) has recently filed a registration statement with U.S. Securities and Exchange Commission for a potential initial public offering (IPO) of its DIRECTV Latin American business. The IPO has been offered in the Class A common stock of Vrio Corp., which is AT&T’s holding company for its Latin American digital entertainment services unit, DIRECTV Latin America. AT&T would retain a majority stake in Vrio Corp. post the IPO.

Joint bookrunners for the IPO are Goldman Sachs & Co (NYSE:GS). LLC, J.P. Morgan Securities LLC, Citigroup (NYSE:C) Global Markets Inc. and Morgan Stanley & Co (NYSE:MS). LLC. The IPO will be carried out by means of a prospectus.

An IPO is an operational business strategy opted by a company to raise funds for investment or expansion or to pay off debt by letting its shares become publicly traded. IPO is also seen as an exit strategy for the company founders and early investors to profit from their early risk taking move in a new venture.

Per a Reuters report, AT&T had initially planned to sell its DIRECTV Latin American business to reduce debt levels, which are likely to increase post the completion of an $85.4 billion cash-and-stock deal with Time Warner (NYSE:TWX) . Several analysts opine that the deal closure might raise the telco’s debt load to more than $180 billion. However, AT&T’s latest push for IPO hints at its failure to find a suitable buyer.

Notably, the company’s DIRECTV Latin America performed well in fourth-quarter 2017. Total revenues from Latin America were $1.391 million, up 10.3% year over year. The improved top line reflects price rises, driven by macroeconomic conditions with mixed local currencies. Meanwhile, operating income was $135 million with continued free cash flow. For 2017, DIRECTV Latin America’s revenues rose 10.9% to $5.57 billion on the back of increased subscriptions.

As of Dec 31, 2017, total subscribers were 13.629 million, up 9.4% from the year-ago quarter. In the reported quarter, the company gained net 139,000 subscribers against loss of 21,000 subscribers in the prior year. The company witnessed remarkable subscriber growth despite cord-cutting, which poses a severe threat to U.S. pay-TV business.

Given this backdrop, we expect investor focus to remain on the outcome of the filed IPO, which is anticipated to affect the telco’s liquidity scenario.

Zacks Rank & Other Key Picks

AT&T is a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Computer and Technology sector can also consider Verizon Communications (NYSE:VZ) and United States Cellular (NYSE:USM) . While Verizon carries a Zacks Rank of 2, United States Cellular sports a Zacks Rank #1.

The projected earnings growth rate (3-5 years) for Verizon and United States Cellular is 5.41% and 1%, respectively.

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