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Market buries AT&T after T-Mobile bid fails; now in oversold territory

Sep. 02, 2011 2:37 PM ETT
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Tim Biggam, TradingBlock (September 2, 2011, 1:40pm CDT)

Symbol Analyst Target Price Target Date
T 30.00 December 16, 2011

AT&T Inc. (ticker: T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. Its Wireless segment offers wireless voice communication services, including local wireless communications service, long-distance service, and roaming services.

The recent Department of Justice decision to hinder, if not scrap, the ATT/T-Mobile deal caused the share price of ATT to drop nearly 7% from nearly 30 to the present levels in the low 28s. T is now trading within shouting distance of its recent low of 27.5, which was last seen with the S&P 500 below 1100.

While T Mobile would have been accretive to earnings, the reaction we feel is somewhat overdone. At these levels, T is now yielding around 6%, with a P/E multiple approaching 8. Both the yield and multiple are at historic extremes, especially given the low interest rate environment.

We look for T to retest its recent high of near 30, with a 30 price target by year end.

Play of the Day

Based on AT&T's (ticker: T) current market price of $28.21 and using a target price of $20.00, a target date of December 16, 2011 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Dec Call Spread +64% 50%
Sell Dec Put Spread +68% 57%
Buy Dec Call +49% 44%
Buy Stock +6% 57%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.

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