In the past year, insiders have continued to trade in AT&T (T), which may be because shares are at cheap earnings multiples. The number of shares bought is 2.4 million, compared to insider sales of 2.6 million. In the past three months, directors such as Michael McCallister, Ruben Anderson, and James Kelly have made purchases. On July 31, 11 insiders made acquisitions on the open market. Investors should not blindly imitate insiders, but they should be wise to take note of the behaviors of insiders surrounding AT&T. It could serve as initial ideas for researches into the stock.
Taking a Closer Look
AT&T has fallen 9% in the past year on a number of factors. The most recent is that the company's posted second-quarter profits that fell just below analyst estimates. Discounts reduced the wireless service profit margin to 42.4% from 45.8% a year ago, making the company miss the 43.4% average estimate.
In the second quarter, AT&T's consolidated revenues totaled $32.1 billion, up 1.6% vs. the year-earlier quarter. However, production costs increased, so the company experienced an operating income margin of 19.1% compared to 21.6% in the previous year. Diluted earnings per share in the second quarter increased by 6% compared to the year prior. The company's LTE network is expected to cover nearly 400 markets by the end of the year, and its LTE deployment is expected to be completed by next year. Income investors should note that AT&T currently pays a dividend yielding more than 5%.
Hedge Fund Activity
In addition to insider activity, hedge fund managers have also been active in the company. At the end of March, 55 hedge fund managers were invested in it. Oz Management, managed by Daniel Och, increased stakes by 700%. Two Sigma Advisors increased its holding by 300%. Mmr Partners increased its stake by 8,900%.
Comparing the Company to Peers
Verizon (VZ) is the closest competitor of the company. As might be expected, Verizon is expanding its LTE network at a fast rate. Since market is improving, it recorded a 4.3% increase in operating revenues during the second quarter. At a P/E of 87.38, it is more expensive than AT&T (26.17). It pays lesser dividends than AT&T at 4.20%. At a profit margin of 1.32%, it is less attractive than 5.73% for AT&T. However, its operating margin at 13.42% is higher than 9.52% for AT&T. Verizon's return on equity at 13.99% is also higher than 7.98% for AT&T. However, it has an EPS of 0.55, lower than 1.31 for AT&T.
Another competitor is Sprint (S). The company's wireless revenues hit $7.2 billion, a record mark for the company, but it ended up with total wireless net subscriber losses of more 2 million last quarter. At a return on equity of 60.94%, and a cash per share of 2.13, it shows a lot of promise. AT&T's cash per share is 0.89. However, at a profit margin of -12.22% and operating margin of 2.50%, it is less attractive than AT&T. With a debt equity of 486.10, it carries a far heavier debt load than AT&T (87.09). Sprint's EPS growth estimate for the next five years is 5.00%, compared with AT&T (6.46%)
Analysts are responsive to AT&T. Argus recently upgraded AT&T to a buy rating based on the company's relative valuation and long-term growth figures. According to Amir Rozwadowski, an analyst with Barclays Bank, AT&T has resources to enable it compete in the market.
The future of the telecommunications industry is bright. IDC stated that the total worldwide telecom market grew by 3.2% during 2012. However, the research firm is forecasting growth of 3.4% during the 2013 time frame. With the continuing popularity of tablets and smartphones, the industry's predicted growth will materialize.
Verizon and AT&T would not be risky buys as both are profitable based on recent results. There are three factors that make AT&T attractive -- a reasonable yield, improved margins from its LTE deployment, and the prospect of a bright macroeconomic environment. It is understandable why insiders are trading the stock at this time.