Will AT&T Surge Higher?

With shares of AT&T (NYSE:T) trading around $36, is it 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, giant providers like AT&T stand to see rising profits. Look for AT&T to continue its dominance as consumers and companies aim to communicate quickly, easily, and efficiently.

T = Technicals on the Stock Chart are Mixed

AT&T stock has been in a range extending back to last year. The stock is now trading near the low-end of its range and seems to be holding these prices well. 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 around its key averages, which signal neutral price action in the near-term.

T

(Source: Thinkorswim)

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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

19.59%

80%

78%

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

July Options

Steep

Average

August 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 significant 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 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

11.67%

-39.59%

3.28%

10.00%

Revenue Growth (Y-O-Y)

-1.46%

0.23%

-0.06%

0.25%

Earnings Reaction

-5.02%

0.8%

-0.82%

-2.11%

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

P = Poor Relative Performance Versus Peers and Sector

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

AT&T

Verizon

Sprint Nextel

T-Mobile

Sector

Year-to-Date Return

7.65%

17.03%

29.28%

9.88%

12.86%

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

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Conclusion

AT&T provides telecommunications products and services to growing companies and consumer populations around the world. The stock has been in a range over the last year and is now holding price levels near the lower-end of this range. Over the last four quarters, earnings and revenue figures have increased over most of the last four quarters, however, investors have expected a little more from the company. Relative to its peers and sector, AT&T has been a poor performer year-to-date. WAIT AND SEE what AT&T does in coming quarters.

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