AT&T Looks Like a Buy at $30

AT&T (T) has released its second quarter results announcing revenues of $61.6 billion and operating income of $12.5 billion for the first half of the year. This result was dominated by strong growth in wireless revenues (up 15.8% in the second quarter) and speculation on the impact of the 3G iPhone on AT&T’s third quarter numbers.

AT&T’s current price of $30.17 is at the bottom of the stock's 12 month range ($29.72 to $42.97) so we decided to apply our discounted cash flow valuation tool to AT&T. Utilising analyst projections, AT&T’s MD&A and our own analysis we arrive at a valuation of $39.25 for AT&T, a 30% discount to the current share price.

Valuecruncher interactive valuation of AT&T and assumptions.

Supporting points for buying AT&T at $30 per share:

• 18 of the 28 analysts aggregated by Yahoo Finance rate AT&T a buy or strong buy.
• Analysts' mean target price for AT&T is $41.31, a 37% premium to the current share price.
• A P/E ratio (ttm) of 13.40 at the lower end of the 5 year range (10.50 - 22.10).
• AT&T’s exclusive iPhone partnership with Apple and the recently released 3G iPhone selling at twice the rate of the original iPhone.

Downside considerations:

• The impact of AT&T’s estimated iPhone subsidy of $300 per device on revenues and margins.
• AT&T’s strong wireless growth is offset by declining voice revenues (down 7.8% or $1.6 billion in the six months to 30 June 2008).
• What are AT&T’s long-term growth prospects beyond the Apple iPhone deal?

Despite these downside risks AT&T looks attractive at a $30 share price the question is whether the market will recognise the discount AT&T appears to be trading at.

Stock position: None.

Comments

[atavist.avatar:]

Valuecruncher has a very poor understanding of the English language, particularly the meaning of words such as "discount" and "speculation".
Otherwise, consices assessment.

2008 Aug 06 09:19 AM

[Urbane Gori...:]

It was also a 'buy' at $35 and $32... Got stopped out both times.. The IPhone issue and its dirt cheap price are compelling... But, the payback period on the IPhone costs seem to be holding back a recovery. I think I'll wait for a clearer uptrend this time...

jegan ;-)

2008 Aug 07 02:33 PM