AT&T (T) is a renowned U.S. based telecom company that specializes in providing wireless and wire-line communications. The company also provides broadband internet and paid TV services to its teeming customers including government establishments across the United States of America and worldwide. AT&T is probably the most recognized provider of wireless cell phone services across the U.S on the basis of its smoothest and excellent 4G network services. The close competitors of AT&T include Verizon Wireless (VZ), which is the largest mobile provider in the U.S., and Sprint (S).
A Look at AT&T's Recent Events and Why I Prefer to Invest in the Stock at the Moment
In the last six months, the price of AT&T stock declined steadily but in the last few weeks, the stock has been consolidating in price gains gradually thereby offering value investors an opportunity to take a new position in the telecoms company.
On the scale of valuation, AT&T is currently trading at a discount in relation to its true market valuation. For example, the company is currently trading at a price earnings (PE) ratio of 25(x) trailing its 12-month's earnings but when compared with its projected earnings for next year, the stock is trading under 13 times. AT&T has been projected to grow its earnings per share (EPS) next year at the rate of 8%. Also, analysts believe that the company could grow its EPS in the next five years at the rate of 6.5% per year. AT&T has economic advantage in network differentiation and that is one of the catalysts that will propel its stock price higher anytime soon. AT&T's network differentiation was made possible by the massive investment the company has been making to improve its network quality.
In the last three years that ended June 2013, about $62 billion have been expended by the telecom giant to gain superior advantage over its competitors in network quality. That whopping sum is four times greater than the amount invested by Sprint and T-Mobile (TMUS) to improve their networks during the same period. Also, the amount is 35% more than the amount invested by 15 of the top publicly quoted U.S. telecom firms during the same period. In addition, another plan to invest about $14 billion for the upgrade of its networks between 2013 and 2015 has already been initiated. All these facts make me to believe that AT&T is a buy now for value investors. At the moment, AT&T and Verizon controls more than 85% of the most coveted customers of the entire telecoms industry's wireless services, both those for contract and data plans.
Other very interesting recent events about AT&T include the following:
1. AT&T is rumoured to be close to selling its portfolio of wireless towers to Crown Castle (CCI) in a transaction that is estimated to be worth about $5 billion. If the transaction sails through according to a report published by Bloomberg, AT&T's balance sheet will receive a boost. The company has about 10,000 wireless towers that have been fetching the company almost $326 million in yearly earnings via lease agreements.
2. AT&T is planning a stock buyback that may cost the telecoms giant a whopping $11 billion. Really AT&T has become a cannibal of sort with respect to the recent policy of the company on shares buyback. According to the report in its 2012 financial report, AT&T repurchased about 6% of its shares outstanding as at that time compared to most companies' policy of buying just one percent or two of their outstanding shares. If the current share buyback plan proceeds as scheduled, shareholders of AT&T should soon reap value from the subsequent improvement in the EPS of the company and subsequently, an increase in the price of the stock. And that is quite possible in the short term because right now, analysts' expectations from AT&T regarding its Q3 earnings report which is scheduled to be released on October 23 is rather very low. The consensus EPS analysts expects is $0.65 which is 2 cents less than its Q2's EPS. With the planned massive share buyback, AT&T only needs to earn a little more to exceed expectations and, hence, improve value to AT&T's share owners.
3. AT&T recently announced its plan to upgrade its Austin U-Verse infrastructure to offer super-fast 1 gigabyte/second connections to users. The plan was to challenge Google's (GOOG) announcement that it had built an Austin Fiber Build Out just at the backyard of AT&T in Texas.
I strongly believe that AT&T is a value company that is currently trading at a discount compared to its intrinsic value.