Equity shares of AT&T Inc. (T) are trading near 52-week highs, closing Monday at $34.15. As shares begin entering territory not seen since the heights of 2008, many investors may be wondering whether this holding will remain a good thing for their portfolios. Here's why I'm bullish on one of the most recognizable telecommunications companies in the world.
With a market capitalization of more than $200 billion, and both 3-month and 3-year returns greater than 11%, AT&T has been a dominant force in the equity markets in recent times. Revenues grew last quarter by nearly 2%; net income grew by over 5%; and earnings per share grew by over 5.2%. In terms of return on equity, positive Q1 rates for the last three reporting years (outperforming the industry average and S&P 500 in 2010 and 2011) point to constant, unrelenting success.
Though the P/E levels at near 50 are a little higher than the greater industry or the S&P index as a whole, I believe this only represents investor confidence in what is otherwise an excellent company from a fundamental standpoint. Expanding margins, decreasing debt levels, net profit margin of over 11%, net income of over $4 billion, and TTM revenues of over $127.2 billion all give me satisfaction in AT&T's financial and market positions.
From a technical standpoint, AT&T's MACD indicates a bullish trend; the chart pattern, 50-day and 200-day moving averages are strongly bullish; relative strength is bullish; up/down volume pattern indicates great accumulation levels; my technical analysis indicates that support should be seen around 31.25 levels. With beta of 0.52, AT&T is a very stable investment candidate with a 5.2% dividend yield. Investors, especially those with income objectives, should certainly take advantage of this week's uncertainty to pile into AT&T.
Global competitors to AT&T include Nippon Telegraph & Telephone (NTT), Telefonica SA (TEF), China Telecom ADS (CHA), China Unicom (CHU), BCE Inc (BCE), France Telecom ADS (FTE), BT Group PLC (BT), CenturyLink (CTL), Chunghwa Telecom (CHT), Deutsche Telekom ADS (DTEGY), Telefonica Brasil SA (VIV), Telenor ASA ADS (TELNY), Telstra Corp ADR (TLSYY), Telekomunikasi Indonesia (TLK), Verizon Communications (VZ), and others; potential investors would do well to check these out and conduct their own due diligence before entering into any portfolio position.
Incidentally, I'm bullish (from a demographic perspective) on several global telecommunications companies; industry readers may want to check out my thoughts on Spanish giant Telefonica SA. Still, downside risk could stem from continued balance sheet difficulties, competitive environment developments, and future customer losses. The bigger picture, however, indicates that these risks will be far outweighed by the pros in AT&T's favor.
Management, moreover, has had a long history of knowing which firms to partner with to most effectively push sales and new contracts. Best Buy (BBY), for instance, was the first to offer AT&T Internet Phone Service back in 2004, and that paid off handsomely in terms of company revenues today. Galaxy S III sales and anticipation should result in accretion to shares and resultant growth in EPS.
More than that, though, the company is focused and streamlined: instead of a giant media conglomerate like Comcast (CMCSA), AT&T management has resisted industry pressures to move towards such holdings and has remained true to the company's storied mission to "Connect people with their world, everywhere they live and work, and do it better than anyone else." At the end of the day, AT&T's path to success will rely upon management continuing to pursue effective operational endeavors. All these give me great reason to believe that AT&T is still a solid investment for my portfolio.
Additional disclosure: I may initiate a long position in T this week.