<<See Part I
How smart are they at using their money & assets to make more money?
I want to know how savvy the company is at making money with what they have now. This will give me an indication of how well I think they can do in the future given we do not know what events may occur. The first thing I want to know is how well they generate income from the money shareholders give them. So if I give them a dollar what can I expect their return on that dollar to be? This is known as return on equity. The industry average is 11.4%, AT&T (T) is 11.9%. So they do better than the industry as a whole. Not only do I want to know how well they use their money to generate money, but I may also want to know how well they generate money with all their assets. This is known as return on assets. While the industry as a whole over the last year was 4.6%, T was slightly less. They came in at 4.4%. For every dollar in assets owned by the companies in Telecom Services, over the last year, they made $4.6 cents. T made just a little less at 4.4 cents for every dollar in assets they owned. Average. The last question I would ask to see how savvy they are at investing in themselves is this: “When you invest money back into the business (whether borrowed or owned), how much money do you make for every dollar you invest? This is called return on capital. For every dollar the industry reinvests in itself, they average a 5.9% return. T comes in lower a bit at 5.4%! Our conclusion - this company is average at best at making more money with the cash and assets they have now. We give them a C-.
How good is the Management team?
When I ask how good the team is that runs the company, I am interested in how well productivity happens. This can bee seen through how well a company moves the product it is selling and also how well the employees bring in money. So the first thing I want to ask myself is: “How productive are the employees?” This is called the revenue/employee ratio; it gauges the average income the work of an employee brings in. The higher the ratio, the more productivity the management team gets out of its employees. T does well here. The industry average is $424,247.00 while T comes in at $435,399.00, so they are doing a little better. Now we all know we need money. Selling is good, but how well do they collect money from customers to pay for the sales? This is known as the receivable/turnover ratio. It gives me an idea as to how well the management team uses the assets they have to bring in their receivables. The higher the ratio, the more it shows that a company is either able to operate with cash, or is very efficient in extending credit and collecting debt. T comes in lower than the industry here, at 7.6, while the industry is 9.4. We don’t like this. Our conclusion - this company’s management team is average but needs to be more efficient at bringing in receivables. We give it a C.
Technical Analysis of AT&T
Long Term: [click to enlarge images]
When we look at AT&T long term and try to analyze where it is going, we become perplexed. For quite a long time while the markets have gone up, “T” has basically done nothing.
While the sector as a whole has gone up with the markets, AT&T has stayed in this “trading zone.” For the last 17 months it has traded between 28.7 and 21.6. Granted the zone does have a nice little spread but we have yet to see it make a move outside of this zone. All the technical indicators are following the chart with no surprises or signs at all.
The chart mirrored the markets as a whole, including January’s drop. But from that point on it broke ranks come mid March. It could not muster the strength to break through the 26.7 resistance level, and it tried 4 or 5 times. From there, we lose steam with the market as a whole and decide to follow them on their bearish excursion again.
At the end of May it hit its yearly low point.
It is at a critical low at 24.28. This is a major support level that we want to see it hold. Otherwise we drop way down to 23 levels back in February of 2009.
Look for our first major test of resistance between 25.5 and 25.8. 25.8 is the strong of the two. Push through here and we are looking at the really strong 26.7 level.
Long term - if we do bounce off our present support, we see an opportunity to move up at least 10% and challenge the 26.7 levels. We are very strong on this. Through here we can easily challenge the “28 levels. Its mean target projected by Analysts is 29.31. If we do reach these levels, we do not expect them to happen until the end of the year and possibly into 2011. If support does hold, we may have an opportunity to play this stock as a covered call and also buy a January 2011 Call at”29.
Disclosure: No Position