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I realize that today's generation is probably not even aware of what "we", as in "us old folks" used to call the mighty telephone company in the pre- breakup days of the original AT&T (NYSE:T); Ma Bell.

We affectionately called the telephone company "ma bell" I suppose because our moms were always on the phone. Well maybe not, but I can't really remember why they were called that. I do recall that we could actually speak to a live operator for a phone number, and if we asked nicely they would even give us an address.

Today, the world is different and obviously so is AT&T. It is no longer simply the old reliable phone company that made it easy to call from here to there. Not the same company that dabbled in the sales of the "Princess" telephone. (Why do I remember that phone either in pink or in beige?) Today we can almost call AT&T a communications sector behemoth, or even close to a conglomerate of sorts.

The company has so many moving parts to its business model that we need to dig to find all of the gems that make up the total value of this great company, and even greater stock.

A Broad Overview Of Its Recent Quarter

To break down every part and parcel of the report could take more than one article so let me quote from its press release (read the entire report here) some of the highlights;

"We continue to capitalize on our terrific momentum in mobile Internet," said Randall Stephenson, AT&T chairman and chief executive officer. "Smartphone and branded computing device sales continue to set a record pace, mobile data revenues were up nearly 20 percent, and we achieved this growth with expanding margins. These results add confidence in our outlook for the year."

Pretty heady stuff to open up the report.

How about the nuts and bolts:

For the quarter ended March 31, 2012, AT&T's consolidated revenues totaled $31.8 billion, up $575 million, or 1.8 percent, versus the year-earlier quarter.

Compared with results for the first quarter of 2011, operating expenses were $25.7 billion versus $25.4 billion; operating income was $6.1 billion, up from $5.8 billion; and operating income margin was 19.2 percent, compared to 18.6 percent.

First-quarter 2012 net income attributable to AT&T totaled $3.6 billion, or $0.60 per diluted share, up from $3.4 billion, or $0.57 per diluted share, in the year-earlier quarter.

First-quarter 2012 cash from operating activities totaled $7.8 billion, and capital expenditures totaled $4.3 billion. Free cash flow - cash from operating activities minus capital expenditures - totaled $3.5 billion. During the first quarter, AT&T began repurchasing shares under its outstanding 300 million share buyback authorization. The company repurchased 67.7 million of its shares for $2.1 billion in the quarter.

Basically, they blew the doors off of the estimates. When we dig a bit deeper we can find some "nuggets" that give us the indication that this stock should be in everyone's core portfolio.

  • Wireless data revenue increased by $1 billion
  • Wireless margins expanded from 25% to nearly 28%
  • An increase in total wireless subscribers of 726,000 in the quarter, reaching a total of 104 million subscribers in service
  • Smartphone sales exceeded 5.5 million this quarter which beat last years same quarter record
  • Branded computing sales had a record quarter which included tablets
  • 61% of subscribers are now on "tiered" data plans which gives the company far stronger margins going forward
  • U-Verse, the bundled TV, Internet, and phone service (which I believe is the secret weapon of the near term) grew to over 6 million subscribers

When we add these results up with the business model that AT&T has, we can easily see why the share price rocketed up nearly 4% yesterday, to close at $31.72/share. Its 52 week high could be shattered today ($31.92).

click to enlarge

AT&T, Inc. (<a href='http://seekingalpha.com/symbol/t' title='AT&T Inc.'>T</a>)

My Opinion

As many of you know, I picked AT&T as my 2012 pick of the year (I never heard of Apple before yesterday) and while it has not been doing cartwheels, it has gone from $28/share to roughly $32/share including two ex dividends of nearly $.88/share. That is a total increase of almost 17% and THAT is nothing to snicker at.

The current dividend yield of 5.70%, as well as the actual performance of the company, makes this stock a critical one to own in any solidly diversified portfolio.

We have it in "Team Alpha's" portfolio. Is it in yours?

Source: AT&T: Never Underestimate The Power Of 'Ma Bell'