Can AT&T Continue This Bull Run?

With shares of AT&T (NYSE:T) trading around $35, is T an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

AT&T is a provider of telecommunications services in the United States and worldwide. Services offered include wireless communications, local exchange services, and long-distance services. AT&T operates in four segments: Wireless, Wireline, Advertising Solutions, and Other. The communications products offered through AT&T’s segments reach audiences using just about every widely adopted medium: Internet, voice, television, and mobile. As consumers continue to adopt this technology, providers like AT&T stand to see rising profits.

AT&T approved a plan to repurchase 300 million shares, or about 6 percent of its outstanding stock. The authorization, which has no expiration date, gives Dallas-based AT&T a total of 425 million shares it’s permitted to buy back, according to a statement released Monday. The company has acquired 775 million shares since 2012. AT&T is giving itself room to boost shareholder returns while CEO Randall Stephenson considers whether to go after acquisitions in Europe or the United States. The company said it expects to maintain its ratio of net debt to adjusted earnings at 1.8 or lower, compared with 1.73 at the end of 2013.

T = Technicals on the Stock Chart Are Strong

AT&T stock has been range-bound over the past couple of years. However, the stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, AT&T is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of AT&T options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

AT&T options

18.52%

73%

71%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Flat

Average

May Options

Flat

Average

As of Monday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on AT&T’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for AT&T look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

291.96%

14.29%

7.58%

11.67%

Revenue Growth (Y-O-Y)

1.78%

2.23%

1.58%

-1.46%

Earnings Reaction

-1.15%

-1.84%

-1.14%

-5.02%

AT&T has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with AT&T’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has AT&T stock done relative to its peers – Verizon (NYSE:VZ), Sprint (NYSE:S), and T-Mobile (NASDAQ:TMUS) — and sector?

AT&T

Verizon

Sprint

T-Mobile

Sector

Year-to-Date Return

-0.06%

-3.24%

-14.7%

-2.02%

-4%

AT&T has been a relative performance leader, year-to-date.

Conclusion

AT&T is a communications and entertainment company that operates around the world. The company recently approved a plan to repurchase 300 million shares. The stock has been consolidating in recent years but is currently surging higher. Over the last four quarters, earnings and revenues have been increasing, which has left investors pleased. Relative to its peers and sector, AT&T has been a relative year-to-date performance leader. Look for AT&T to OUTPERFORM.

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