Do AT&T’s Big Plans Support a Move to the Upside in the Stock?

With shares of AT&T (NYSE:T) trading around $34, 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 recently unveiled some big plans to expand its LTE network. During a Tuesday morning conference heard by TechHive, CEO Randall Stephenson said AT&T’s network will eliminate copper phone lines completely by 2020 in order to switch entirely to LTE, IP, and cloud computing. AT&T is also developing a service called LTE Broadcast that will help deliver specific content to certain areas and ease traffic on its LTE network.

T = Technicals on the Stock Chart Are Mixed

AT&T stock has been range-bound over the past couple of years. The stock is currently trading near the lower end of its two-year range. 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 below its key averages, which signals neutral price action in the near term.

T

Source: Thinkorswim

Taking a look at the implied volatility 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

18.63%

30%

28%

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

Put IV Skew

Call IV Skew

October Options

Steep

Average

November Options

Steep

Average

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

E = Earnings Are Mixed 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

7.58%

11.67%

-39.59%

3.28%

Revenue Growth (Y-O-Y)

1.58%

-1.46%

0.23%

-0.06%

Earnings Reaction

-1.14%

-5.02%

0.80%

-0.82%

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

P = Weak 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 US (NASDAQ:TMUS), and sector?

AT&T

Verizon

Sprint

T-Mobile US

Sector

Year-to-Date Return

1.48%

9.22%

9.82%

30.99%

12.35%

AT&T has been a poor relative performer, year to date.

Conclusion

AT&T is a communications and entertainment company that operates around the world. The company has recently revealed big plans for its LTE network’s future. The stock has been consolidating in recent years and is now trading near lows for the year. Over the last four quarters, earnings have been increasing while revenues have been mixed, which has proven not to satisfy investors. Relative to its peers and sector, AT&T has been a weak year-to-date performer. WAIT AND SEE what AT&T does in coming quarters.

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