I made a crystal ball stock pick late last year of AT&T (T) being "My Stock Pick Of 2012". Of course it was not long after that prediction that the slam dunk merger of T-Mobile and AT&T fell through. To add salt to the wound, AT&T had to fork over 3 billion bucks to them for the failed takeover.
At the time of my pick, the price was $28.64/share. They were $3 billion in the hole soon thereafter and Apple (AAPL) was setting records for the entire first quarter of 2012.
What a difference a month makes.
Not only did AT&T already have the $3 billion tucked away for the worst case scenario, but things were actually beginning to look up for all of their businesses. (Review this article)
- Retail sales exploded with the new iPhones
- 10 new Android smart-phones were in the pipeline
- Earnings estimates were met and beaten
- The dividend was increased
- iPad sales were brisk to say the least
- More infrastructure was invested in to soften the failed takeover impact
- U-Verse has broadened its reach to many other areas
- Older wireless pricing packages have been weeded out aggressively, and a better structure for profit has emerged for AT&T's bottom line
Now we had something to look at -- say "hey, wait a minute," this might not be a rocket to the moon, but things look pretty darn good!
The Latest Tailwinds
Today the share price has risen to $33.81 as of 2:00PM, and even more news has come out.
- Credit Suisse increased AT&T's forecast and upgraded its status as reported here
The moves are all tied to a broader call asserting that wireless carrier behavior is changing when it comes to smart-phones. Chaplin writes that there are signs across the industry of "growing discipline around pricing and subsidies." If that holds, he writes in a research note, "there is upside to margins and earnings growth for all carriers." He thinks investors should own "overweight telcos into this trend."
- AT&T (and other wireless carriers) were tightening up on upgrades, pricing structures, and subsidies to the likes of Apple, as noted quite clearly in this report
"By limiting upgrades for smart-phones and showing improved 'discipline' on price subsidies, U.S. wireless carriers may lift their profits but also usher in lower sales of popular devices like the iPhone."
Pretty clear to me where this is heading. It continued:
"If this discipline holds, we believe there is upside to margins and earnings growth for all carriers," he wrote. "We believe investors should be overweight telecom into this trend."
- With margins rising, and subsidies being limited reduced and eventually eliminated, profits can really take off
"Carriers' returns have been under pressure, Chaplin noted, from the rapid growth of smart-phones, as the devices lead to sharp increases in the use of their data networks, necessitating additional capital expenditures. He also noted that subsidy costs have risen sharply, growing by 34% in 2011 alone."
By trimming those costs on the top, and adding margin to the bottom line, AT&T has some pretty strong tailwinds through the rest of the year in my opinion.
So Let's Look At The Scoreboard
I picked AT&T in late November when it was about $28.64/share. Today the price is at $33.81/share.
We have been paid 2 quarterly dividends totaling $.88/share which gives us a total return as of right now of $6.05/per share or nearly 24%.
During the same time frame, the S&P 500 has gone from 1200 to 1360 or an 11% return on that index. AT&T has more than doubled the key market index and does not appear to be slowing down soon.
While I did not pick Apple, it seems as if I could be in the game after all with AT&T. Even if it does not come out on top, I am obviously happy with the way things are going.
AT&T, with a 5.4% yield, and lots of positives now going its way, deserves to be in just about anyone's core portfolio.
Disclosure: I am long T.