AT&T: A Spring-Loaded Stock On iPhone 5 Release

| About: AT&T Inc. (T)

AT&T (NYSE:T) looks appealing as a long-term defensive position in the telecom industry. This stock offers an adequate dividend alongside stable metrics. AT&T also has potential for an uptick with the release of the new iPhone 5, while it steadily improves its global portfolio and enterprise services. AT&T has been successful in continuously increasing its massive customer-base while improving profitability per user and decreasing churn rates. Current shareholders should hold long-term while interested investors should buy as products launch for the holiday season and AT&T continually expands its LTE network.

Verizon (NYSE:VZ) is the most direct competitor to AT&T. CenturyLink (NYSE:CTL) is also comparable as a U.S. telecom focused on expanding its wireline network and global enterprise portfolio. Sprint (NYSE:S) is comparable because it is the third major wireless carrier and also depends heavily on iPhone sales. Apple's (NASDAQ:AAPL) metrics are also relative as its new iPhone 5 launch will be a major catalyst in third and fourth quarter revenues for major wireless carriers. Both AT&T and CenturyLink's price is around 51 times earnings; Verizon's price is around 45 times earnings. AT&T's price-to-book ratio is around 2.14, Verizon's is around 3.5, CenturyLink is around 1.32 and Sprint is at 1.69.

AT&T's price-to-sales ratio is around 1.73, higher than Verizon at 1.15, Sprint's 0.45 and CenturyLink's 1.45. Verizon's EPS is around $1.00, higher than AT&T's $0.75 and CenturyLink's $0.84, Sprint's is -$1.28. Apple's sales growth for the past 5 years was around 41.16% and the past quarter and YOY was around 22.58%. AT&T's sales growth for the past 5 years has been around 14.9%, Verizon's was 4.69%, and Sprint was at a 3.86% deficit. AT&T's debt-to-equity ratio around 0.62 is below CenturyLink's 1.06, Verizon's around 1.41 and Sprint's around 2.3. AT&T's 4% return on equity, 7.9% operating margin and 3.6% net margin are lower than Verizon's margins by more than 300 bps; all of Sprint's margins are running at significant deficit.

AT&T's market cap is around $220 billion, nearly double Verizon's $129 billion. Verizon has the lowest beta score, however all three US telecoms are around 0.5. Sprint's beta is usually over 1.1 and it has the highest average daily volume around 63 million shares. AT&T average volume is around 25 million shares, compared to Verizon's 14 million and CenturyLink's around 5.5 million. AT&T's annualized dividend is around $1.76, lower than CenturyLink's $2.90 and Verizon's $2.00. All of the aforementioned stocks are less than 5% below their respective 52-week high. Among the US telecoms, AT&T's stock increased the most YTD through mid-September by over 31%, Verizon's increased around 17.9% and CenturyLink increased 21.7%. AT&T's stock has increased by around 7.1% since its last earnings release.

AT&T's long-term reliability and stability, alongside the lower stock price make it an attractive choice to consider. Its recent earnings release detailed several reasons to remain bullish on AT&T for the long-term. Second quarter operating revenue was relatively flat, increasing 0.3%, YOY to $31.57 billion. Second quarter total operating expenses decreased 2.3%, YOY to $24.75 billion. Operating income increased 10.6%, YOY to $6.81 billion while net income increased 8.7%, YOY to $3.9 billion. Second quarter operating income margin increased 200 bps, YOY to 21.6%. There has been continuous growth in the subscriber base alongside an increased percentage of subscribers with smartphones, increasing data revenues. AT&T's switched access lines decreased 12.7%, YOY, due to the adoption of wireless, VoIP or cable services along with vacated premises.

In the first half 2012, wireless subscribers increased to 105.2 million from 98.6 million, YOY. Network access lines decreased from 39.2 million to 34.2 million and broadband connections were flat at around 16.4 million. AT&T is focused on mitigating revenue loss in its wireline division by marketing bundles, U-verse and data services. Wireless income increased 17.7%, YOY to $4.9 billion and AT&T decreased total churn by 25 bps, YOY to 1.18%. AT&T currently offers at least 16 smartphones covering Windows, iOS and Android; accounting for 61.9% of post-paid subscriber base, up from 49.9%, YOY. The Family Talk plans cover 88% of the post-paid subscribers while data plans increased 12%, YOY. Over 61% are on tiered data plans, up from 44.8%, YOY.

ARPU from post-paid subscribers increased 1.7%, YOY while data services ARPU increased 11.3%. Around 33% of the subscribers utilize 4G; AT&T knows it needs the LET network to expand in order to sustain increasing data revenues. AT&T will phase out the 12% on 2G by 2017 in order to fully redeploy spectrum for improved 3G and 4G access. Wireline income increased 2.1%, YOY to $2.05 billion. Wireline data revenue increased 7.8%, YOY to 7.9 billion, these revenues accounted for 53% of wireline operating revenue, up 500 bps, YOY. Strategic business services revenue increased 13.5% in the second quarter and 16.2%, YOY for the first half. IP revenue increased 15.4%, YOY mainly due to U-verse penetration and a growing customer base.

The keys to AT&T's near term and long term prosperity is increasing profitability per user on the new iPhone, increasing its enterprise and wireline portfolio and effectively expanding its LET network to catch up with Verizon. AT&T has been recognized as the leading choice for businesses looking for private clouds and VPNs. Out of 300 surveyed US IT managers and executives, around 48% used AT&T. It was cited as a reliable choice for any sized business, independent developer or enterprises and is the first telecom provider to offer the cloud platform-as-a-service.

AT&T's LTE is up in over 60 markets covering around 275 million people and is projected to service 100 markets by 2013 and 80% of the US before 2014. AT&T has invested over $115 billion over the past 5 years to keep pace with Verizon's LET network that's currently deployed in over 370 markets. Verizon added 1.2 million new users in the second quarter to total 94.2 million wireless subscribers; AT&T added 1.3 million in the quarter. AT&T is projected to sell anywhere from 4.5 million to 5.5 million iPhone 5s within the first week of its release. AT&T's already massive subscriber base and tiered data plans should make the 4G iPhone 5 a much more profitable launch than previous models.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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