AT&T, Inc (NYSE:T) is a U.S. telecommunications services provider. It is the second largest wireless carrier. Services are provided to over 95 million customers. There are four other peer companies that I rank and offer direction for below. Like so many super big companies, AT&T is once again starting to slow its earnings growth.
Second and third-tier companies will most often outperform the older giants within an industry group. Surprise, the risk / reward ratio is also often superior for lower tier companies. And is definitely true about their net price appreciation.
For me, my methodology has worked well for over five decades. The research process of valuation and cycle analysis is simple after doing it for 50 years. I use a formula that says: Accurate Forecasts / Positive Conformations = Profitable Results. ( F / C = R ).
My Current Technical Opinion of AT&T: Hold with caution and wait for a decent pull back before buying.
AT&T talks much about its financial plans and its successes. In reality, for several years the talk does not measure up. I share my assessment of AT&T in order to help investor expectations conform to reality. In my practice, a reality check is quite similar to my process of comparative analytics. Nowadays, companies either have or do not have clear valuation support for future price appreciation. AT&T is not measuring up to reasonable corporate expectations and will again pay the price. (See the Price History below). You will note that shareholders pay the price dearly, during bearish time frames.
The company is investing over $4.4 billion to build a fiber-optic network to offer IP-based video, broadband Internet, and VolP services over a single line.
AT&T is currently selling for about $30. and has a recent high of $32. It pays a 5.0% dividend, that is not all that generous for a large company. Of 14 telecomm services companies that pay dividends, AT&T is ranked 10th! It is not likely that investors will be rewarded with much more upside price appreciation in the coming months. The recent price advance from $26. to $36. over the past year convinces me that, a lower price per share is a good forecast. I also do not like the flat earning growth projections for the next few years.
Are you aware that AT&T's shares in 1999 sold for over $37? The highest it has been since was in 2007 when it reached $33. per share. The 2009 to date rally has only returned the price per share to $33. That is unacceptable price performance for me and should be for you too. Now it is back to $36. and shareholders believe this lethargic giant is going to the moon. Some of you might want to try my course of study, called "Reality Check 101." The 20-year chart (see below) tells this story best. You may want to ponder before taking new positions. This chart compares AT&T with the SPDR S&P 500 ETF (NYSEARCA:SPY). I use this ETF to provide an important perspective about a company that I am valuating. The first is thing how AT&T tracks the index in bullish and bearish market time frames. The second thing is a statistical measure of percentage gain and loss during bullish and bearish market time frames. Trends are a very helpful tool when investing wisely.
Current Valuation of AT&T, T - (Click on chart) to view a 20-year chart of AT&T)
Target Price: (from the high)
plus 4-6% / minus 20+%
51.0 - - That is scary!
Forward P/E (fye 12/31/13)
13.7 - - This divergence is often deceiving.
5.7 - - That is scary too!
Price to Sales:
Price to Book:
(minus) - 22%
Source: Raw data taken from Finviz.
Notes for the above table: Target price is calculated and produces a probable range of the current price over the coming one to three months. Valuation divergence is calculated and produces a plus or minus percent of price over the following one to three months after a given bullish or bearish inflection point.
Comments for the above table: These are not strong Valuations and Target Price Projections. When I do further fundamental studies, the valuation does not improve. Projected earnings growth for AT&T will remain flat but fall off for a couple years or more. Good technical and consensus opinion analysis suggests that AT&T will not sustain its current up-trend. Investing in AT&T at this time, or even holding, definitely is not investing wisely.
(click to enlarge)
Regarding the above chart, please note the following: The earnings per share remains well below the 2007 level. The P/E ratio is not supposed to be high, that is a big negative. The volume is diminishing, slightly over the years. These are not supportive facts to foster continued price appreciation.
I have reviewed the company's income statement and balance sheet. I do not find anything to take issue with. There are many other companies with financials that present a better outlook.
It is clear from the above price charts that there are some longer-term problems with AT&T. Technical indicators are in the process of breaking down. This is my initial warning that prices will be falling in the coming months and perhaps beyond.
Rating of Four Industry Peers
Rating & Direction: (ascending / status quo / descending)
Verizon Comm. (NYSE:VZ)
Very Good - - ascending
Vodafone Group (NASDAQ:VOD)
Good - - status quo
CenturyLink, Inc. (NYSE:CTL)
Good - - status quo
Sprint Nextel (NYSE:S)
Good - - descending - long-term
My Ratings range from Excellent to Very Poor - - with Direction.
(click to enlarge)
My general market opinion is that the fundamentals are over valued; the technicals are over bought, and the consensus opinion is way too bullish. I am currently a bear because my valuations are convincingly negative, and we are in a bearish cycle; it's just that simple!
Further support for my guidance for the general market can be read in my weekly Instablog article "Wednesday - General Market Update & Commentary."
Currently, the above tables and charts present a clear and not-so-positive account of these companies and the overall market indicators. It is a fact that the stock market cycles endlessly both fundamentally and technically from bullish to bearish and then back again to be bullish. The bullish trend of these companies will be back to profit from very soon. That is also a fact you can be assured of, so just be patience. Unfortunately, this is a pattern that is not well understood or taken advantage of by most investors.
I recommend prudent caution for all these companies. The weaker companies are clearly identified with guidance and direction above.
Within this present bearish time frame, there is nothing fundamentally (longer-term) wrong with these companies. It is simply what happens when they turn technically bearish. And is just the ongoing "cycling effect" of the way the stock market works. I hope you understand and will continue to follow my work / analytics for guidance. It won't be long before I can offer you a bullish and upbeat forecast once again.
May I remind you to take a few minutes to study my longer-term charts? When buying or selling, taking a longer-term look of a security's price history is often the difference between profits and losses!
I am currently bearish on both the world economies and the general market. My more recent Instablog postings are focused on securities that should not be currently held in your portfolio. I suggest that it is vitally important for you to understand that holding cash during questionable time frames in the marketplace is a much wiser choice than holding your present positions. I can assure you that; this is definitely a "questionable" time frame! Support for some of these companies' current status will be posted this coming Saturday. My "Saturday Update" can be read weekly in my Instablog article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.