AT&T (NYSE:T) is a provider of telecommunications services in the U.S. and worldwide. On July 23, 2013, the company reported second-quarter earnings of $0.67 per share, which missed the consensus of analysts' estimates by $0.01. The stock is down 0.68% in 2013, and is losing to the S&P 500, which has gained 15.18% in the same time frame, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some more of AT&T right now for the technology sector of my dividend portfolio.
AT&T currently trades at a trailing 12-month P/E ratio of 25.62, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.56 is currently inexpensively priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $2.69/share and I'd consider the stock cheap until at least $40. The one-year PEG ratio (3.09), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 8.28%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. AT&T boasts a dividend of 5.32% with a payout ratio of 134.6% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.7%, 8% and 6.2%, respectively, which are all respectable values, but nothing to write home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 5.32% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 29 years with a 5-year dividend growth rate of 4.4% but I believe future increases may be at a low rate with its already high payout ratio.
Looking first at the long-term relative strength index chart [RSI] at the top, I see the stock muddling around in middle territory with a value of 42.58 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, indicating the stock has downward momentum. As for the stock price itself ($33.82), I'm looking at the 20-day moving average to act as resistance and $31.70 to act as support for a risk/reward ratio, which plays out to be -6.27% to 4.73%.
- On July 24, 2013, the company reported earnings of $0.67 per share for the second quarter on revenue of $32.1 billion versus expectations of $0.68 and $31.81 billion making the stock drop 1.14% on the day after it reported.
- On July 12, 2013, the company announced it is buying Leap Wireless for $15 per share in cash.
AT&T is inexpensively valued based on future earnings but expensively priced on future growth prospects (one-year outlook). Financially, the dividend payout ratio is high based on trailing 12-month earnings and I don't doubt management will be able to continue to increase the dividend going forward; based on future earnings the dividend payout ratio goes down to around 66%. The technical situation of how the stock is currently trading is telling me we might be seeing some more downward pressure. Personally I would wait a while to make a purchase to see what happens with the market.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!