AT&T's (T) stock has outperformed expectations for most of 2012. There is the slight potential for minor headwinds facing the telecom tycoon through 2012 and 2013, but nothing that should drastically affect its value in the market any time soon. AT&T still has the potential for growth behind a promising outlook of increased revenue throughout the remainder of the year. In this article, I will explain why interested investors should buy now before the stock increases beyond current resistance levels as the fall season approaches. Current shareholders should hold onto this stock as a defensive asset with a substantial dividend yield for the long-term.
AT&T's sales growth has decreased by over two percent from the previous quarter. AT&T's sales growth has increased by less than two percent from the previous year. AT&T's beta is close to 0.5 while its PEG ratio is slightly under 2.5. Its current price is around 15 times earnings; this is an improvement from the trailing 12 months price of over 16 times earnings. AT&T's operating margin, return on equity and net margin have all increased marginally from Q4 2011 to through the end of Q1 2012. AT&T's current ratio has decreased slightly since 2011 and is still currently less than one. Its debt to equity ratio has been relatively stable since 2011 and is currently around 0.5. AT&T's dividend yield is around 4.89 percent, this equates to an annual rate of $1.76.
AT&T has one of the highest dividend yields in the industry. Its growth rate is more than double the industry average for this year. Next year and for the next five years, AT&T's projected growth is slightly less than the industry average. AT&T's trailing 12 months price to earnings ratio is slightly less than the industry average. AT&T's trailing 12 month margin is significantly higher than the industry average. Its return on equity for the same time period is also higher than the industry average. AT&T's stock has outperformed the industry and expectations thus far in 2012, shareholders and interested investors can feel confident in holding this stock as a long-term defensive asset in their portfolio.
There are minor headwinds on the horizon facing AT&T. The failed acquisition of T-Mobile and $4billion wasted in the process is now behind the leading telecom. Increasing competition from Verizon (VZ) and Sprint (S) iPhone and iPad subscriptions is a growing concern but has not reached the point where it is truly impactful. It is doubtful that Sprint will be able to sustain unlimited data and minute subscriptions for the iPhone for long if it does want to increase earnings in order to become truly profitable. Subscriptions for the iPhone are increasing for Verizon, but the RAZR line for Verizon powered by Google's (GOOG) Android is almost just as popular for this telecom. AT&T continues to be the leading provider of iPhone users.
The availability of enough spectrum or airwaves is a present concern for AT&T to sustain its large volume of mobile subscribers. Mandates by the FCC are limiting AT&T options in purchasing additional airwaves. This is perhaps the most dire concern currently for AT&T. Verizon's growing list of over 230 cities with 4G compared to AT&T's 11 is also a concern on the horizon. It is noteworthy though that AT&T does have the fastest network in the U.S. There is also the small possibility of a strike on the horizon as disgruntled employees in California and Nevada have had walkouts due to the shift in healthcare costs to the employees and reduction of retirement benefits.
Increasing competition from Verizon has been steadily gaining on AT&T's market share, but it is not a serious concern at this point. There is enough room for vertical and horizontal expansion for both organizations to remain viable for some time. AT&T has recently announced it will be a carrier for the presumably popular Samsung (F)">SSNLF.PK) Galaxy S III, and AT&T will also be looking forward to a boost in revenue from the Apple's (AAPL) iPhone 5 that is expected to be released in the fall. The iPhone currently accounts for 70 percent of AT&T's smartphone sales. There was also a 30 percent increase of smartphone users on the 4G network throughout the last quarter. These two statistics bode well for upcoming release of the newest version of the iPhone that will run on 4G. Some analysts may feel that the recent run on AT&T's stock has it overvalued in the market. However, the growth in U-Verse and iPhone subscriptions throughout the year should help earnings outpace the current demand in the market.
AT&T now has around 4 million TV subscribers on its U-verse service. It also has around 2 million on its high speed internet platform for U-verse. This is rapid growth for a service that is less than a few years old. AT&T was able to decrease its churn rate to the lowest level in the last seven quarters. AT&T has also repurchased over 67 million shares, resulting in $2 billion in buybacks. AT&T has experienced around 19 percent growth in its strategic business services revenues and 38 percent growth in U-verse revenues. This is the seventh consecutive quarter of wireline growth year-over-year. AT&T is also promoting its new enhanced push-to-talk and toggle services for business customers.
AT&T and Henkel AG & Company recently agreed on a new three year contract to implement telepresence solutions and unified communications that help support Henkel's global presence in nine different locations worldwide. This technology will help enhance real-time communication and conference capabilities between management, employees and clients operating all over the world. This is just one example of the versatility AT&T has in its expansive portfolio of services outside of the mainstream consumer platforms. I believe shareholders can hold onto this stock and expect a long-term outlook of capital appreciation and substantial dividends as AT&T increases its mobile market share and global portfolio of available services and clientele.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.