Is AT&T Oversold At Current Prices?

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 has officially sold 9,700 of its wireless towers to Crown Castle International (NYSE:CCI) for $4.85 billion in cash, Reuters reports. The agreement involves Crown Castle purchasing 600 of AT&T’s towers and leasing and operating the remaining 9,100 for 28 years. Reuters pointed out that when carriers like AT&T sell their towers, they usually lease back the space from the new operators in order to offer uninterrupted service to customers.

T = Technicals on the Stock Chart are Mixed

AT&T stock has struggled to make positive progress in recent months. The stock is currently trading near mid-prices for the year and looks poised to continue this path. 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 between its key averages, which signal neutral price action in the near-term.

T

(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

17.51%

0%

0%

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

Put IV Skew

Call IV Skew

November Options

Steep

Average

December Options

Steep

Average

As of today, there is an 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 very small amount of call and put option contracts and are leaning neutral to bearish 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 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 rising earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have expected more from 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), T-Mobile (NASDAQ:TMUS), and sector?

AT&T

Verizon

Sprint

T-Mobile

Sector

Year-to-Date Return

-5.38%

-3.22%

14.59%

55.67%

3.16%

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. A recent sale of 9,700 of its towers has investors upbeat about the company. The stock has not done well in recent months and is currently trading near mid-prices for the year. Over the last four quarters, earnings have been rising while revenues have been mixed, however, investors have expected more from the company. Relative to its peers and sector, AT&T has been a weak year-to-date performer. WAIT AND SEE what AT&T does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet