Is AT&T’s Stock a Buy Now?

With shares of AT&T (NYSE:T) trading at around $34.02, 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:

AT&TC = Catalyst for the Stock’s Movement

The biggest news today is that AT&T will buy spectrum from Verizon Communications Inc. (NYSE:VZ) for $1.9 billion. AT&T is willing to take calculated risks in order to assist growth through acquisitions. However, we’re not going to focus on that here. Instead, we’re going to focus on the big picture for AT&T.

AT&T recently reported Q4 EPS of $0.44 and revenue of $32.58 billion. Both numbers beat expectations. FY2012 EPS came in at $2.31, and revenue came in at $127.40 billion. Both were improvements over 2011. Wireless revenue was up 5.7 percent, wireless data revenue was up 14.7 percent, branded computing service subscriptions were up 26 percent, business services were down 2.1 percent, wireline revenues were down 0.5 percent, and residential revenue was up 3.0 percent. Also, U-Verse now has 4.5 million subscribers.

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In regards to wireless, 1.1 million customers were added, bringing the total to 107.0 million. This had a lot to do with smartphones, mostly Apple’s (NASDAQ:AAPL) iPhones and Google (NASDAQ:GOOG) Android phones. Guidance for 2013 is for 2 percent revenue growth, and EPS growth at least in the high single digits.

Now let’s take a look at the big picture for AT&T…

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for AT&T is now stronger than the debt-to-equity ratio for Verizon, which wasn’t the case as early as yesterday. Cash on AT&T’s balance sheet has increased by more than debt added. Operating cash flow is very impressive at over $36 billion.

Debt-To-Equity

Cash

Long-Term Debt

T

0.43

$4.87 Billion

$69.80 Billion

S

2.51

$6.33 Billion

$21.30 Billion

VZ

0.61

$3.56 Billion

$51.99 Billion

 

T = Technicals on the Stock Chart Are Mixed

AT&T has underperformed Verizon and Sprint Nextel Corporation (NYSE:S) over a three-year time frame. However, the numbers are close and AT&T yields 5.30 percent whereas Verizon yields 4.80 percent and Sprint offers no yield. On the other hand, Sprint has dominated this competition over the past year.

1 Month

Year-To-Date

1 Year

3 Year

T

2.04%

2.13%

18.37%

57.62%

S

2.64%

-0.44%

156.60%

64.10%

VZ

-0.83%

-0.21%

18.67%

63.31%

 

At $33.98, AT&T is trading slightly above its 50-day SMA, and below its 100-day and 200-day SMA.         

50-Day SMA

33.97

100-Day SMA

35.24

200-Day SMA

34.93

 

E = Earnings Have Been Inconsistent  

The numbers below don’t include 2012, which can be found in the Catalyst section. Earnings have been inconsistent, but revenue has steadily increased since 2009.

2007

2008

2009

2010

2011

Revenue ($)in billions

118.93

123.44

122.51

124.28

126.72

Diluted EPS ($)

1.94

-0.44

2.05

3.35

0.66

 

We already know what happened this quarter. Now let’s take a look at previous quarters.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

31.48

32.50

31.82

31.58

31.46

Diluted EPS ($)

0.61

-1.12

0.66

0.66

0.63

 

T = Trends Support the Industry

Trends support the industry for the most part. If you want more details here, check the Catalyst section for a breakdown. The bottom line is that wireless is still growing and AT&T is well positioned.

Conclusion

AT&T does have to deal with access line losses, intense competition, and iPhone subsidies, but the positives greatly outweigh the negatives. These positives include excellent cash flow, steady revenue growth, solid guidance, increased subscribers, U-Verse expansion, and a 5.30 percent yield. The Forward P/E is also just 12.59.

AT&T’s stock isn’t likely to be as strong as it has been over the past three years, but it’s still an OUTPERFORM.

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