AT&T Looks Like a Buy at $30

| About: AT&T Inc. (T)

AT&T (NYSE: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.

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Tagged: , Telecom Services - Domestic, Earnings
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