- Next year's earnings estimate has increased but the threat of a contraction still exists.
- The stock is still inexpensive on next year's earnings expectations.
- The Leap Wireless deal is finally approved.
"Due to the bullish technicals, secure dividend, and increasing financial metrics I'd normally be pulling the trigger on a very small batch of this particular name right now; however, due to the earnings contraction coming next year I'm likely to sell out of my position shortly but am conflicted about it. I don't like to see earnings contractions whatsoever."
So I didn't pull the trigger on a batch of the stock, but I also didn't sell it. I'm going to give it another quarter. Since the time the article was published, the stock has popped 6.47% versus the 2.92% gain the S&P 500 (NYSEARCA:SPY) posted. AT&T is a provider of telecommunications services in the U.S. and worldwide.
On January 28, 2014, the company reported fourth quarter earnings of $0.53 per share, which beat the consensus of analysts' estimates by $0.03. In the past year, the company's stock is down 4.42%, excluding dividends (up 0.72% including dividends), and is losing to the S&P 500, which has gained 19.32% in the same time frame. With all this 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 more shares of the company right now for the technology sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 10.31, which is inexpensively 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 for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $2.79 per share while the trailing twelve month earnings per share were $3.4. Next year's estimated earnings are $2.79 per share and I'd consider the stock inexpensive until about $42. The 1-year PEG ratio (2.18), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 4.73%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
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 5.25% with a payout ratio of 54% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.7%, 20.8% and 12.8%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 5.25% 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 30 years at a 5-year dividend growth rate of 2.4%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory with a current value of 75.71. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($35.07), I'm looking at $36.50 to act as resistance and $34.75 to act as support for a risk/reward ratio which plays out to be -0.91% to 4.08%.
- The company authorized 300 million shares to its buyback. This is an awesome tidbit of news to hear. This should bring earnings per share up a bit.
- The company declared a $0.46 quarterly dividend. The dividend will have an ex-date of 07Apr14 with a pay date of 01May14.
- The FCC has finally approved the Leap Wireless deal. The deal grants AT&T access to Leap's high-frequency spectrum assets.
There definitely has been a rotation into this name from some of the high-flying names during the past month as exhibited by the 6.47% gain in that time frame. Fundamentally, the stock is inexpensive on next year's earnings and expensive on the earnings growth potential. Financially, the dividend yield is excellent and well supported by earnings. Technically, it appears the stock has some downward momentum going right now. Due to the low earnings growth expectations, bearish technicals, and earnings contraction expectations I will not be pulling the trigger on this name right now.
Because I swapped out Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) for AT&T in my dividend portfolio it is only fair that I provide an update from the swap-out date. From August 20, 2013, AT&T is up 3.79% while Cracker Barrel is down 1.83% and the S&P 500 is up 13.75%. My change out is performing well against the trade itself, but not against the overall market.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long T, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.