AT&T (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. There is nothing sexy about any telecom company other than its high-dividend yield. The stock is down 2.1% since the last time I wrote about it and is losing to the S&P 500, which has lost 0.08% in the same timeframe, 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 picking up some more of the stock right now for the utility sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 25.08, 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 12.37 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.68 per share and I'd consider the stock inexpensive until about $40. The 1-year PEG ratio (3.05), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 8.21%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 5.44% with a payout ratio of 136% 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 go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 5.44% 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 at a 5-year dividend growth rate of 4.4%. Below is a comparison table of the financials metrics for the company from the last time I wrote the article to now.
Payout TTM (%)
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 42.41 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 ($33.11), I'm looking at $33.45 to act as resistance and $32.36 to act as support for a risk/reward ratio, which plays out to be -2.26% to 1.02%.
- The company is close to selling its tower portfolio to Crown Castle (CCI) for almost $5 billion according to a report published by Bloomberg.
- Since Google (GOOG) announced an Austin Fiber Build Out in AT&T's backyard (Texas), AT&T has retaliated with an announcement that they too are going to upgrade its Austin U-Verse infrastructure to offer 1 gigabyte/second connections to residents.
With speculation recently of the company looking to expand more internationally, I would not be surprised to see the proceeds of the tower portfolio sale go to that cause in the near future. The company is inexpensively valued based on future earnings but extremely expensive on future growth. If the company does end up expanding overseas I would not be surprised to see the future growth estimates of the company increase. Financially, the dividend payout ratio is very high based on trailing 12-month earnings and I don't see the dividend being increased dramatically in the near future. The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure in the immediate future. The stock is inexpensive on future earnings valuation, has a high dividend yield, is looking to grow internationally, and for these reasons, I will layer into the stock right now because I can actually see it coming down to the $32 level. I will evaluate again at $32 to see if I should layer in another position.
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.