T Market Research & Analysis Report
Updated Feb 5, 2014

Growth and Balance Sheet

The company reported a net income of $6,913 million, or $1.31 diluted earnings per share for the fourth quarter of 2013 ending December 31. That's up from a net loss of $3,857 million, or 68 cents diluted loss per share for the same quarter last year. Excluding significant items EPS was up by 20.5%, from the previous quarter, to 53 cents per share. Revenues for the fourth quarter of 2013 were $33,163 million, up from $32,578 million for the same quarter last year. The wireless segment revenue was up by 4.5% to $18,437 million in comparison to the same quarter last year; total postpaid ARPU (average revenue per unit) increased by 2.1%, marking 20 consecutive quarter year-over-year increase. Also notable is the lowest fourth quarter churn rate of 1.11% compared to 1.19% for the same quarter a year earlier. Wireline segment revenue were down by 1.4% to $14,716 million, but up 0.3% sequentially. TV and high speed internet subscribers reached 10.7 million in the fourth quarter, with lowest ever churn rate in company’s history. The operating income margin for the quarter was 36.9% compared to -18.3% for the fourth quarter last year. Free cash flow for the quarter totaled $2,467 million compared to $4,608 million for the same period last year. T forecasted first quarter of 2014 EPS are from 66 cents to 71 cents, compared to 67 cents for the same quarter of 2013. The financial strength indicators of the company are at a satisfactory levels when compared to the industry averages. The current ratio of 0.66 is worse than the industry average of 1.01. However, the long term debt to equity ratio of 76.15 is better than the industry average of 79.12. In terms of efficiency, the asset turnover ratio of 0.47 is better than the industry average of 0.34; the receivables turnover ratio of 10.07 is also better than the industry average of 8.07; moreover, the ROE of 20.15% is far superior to the industry average of 13.6%.

Valuation

T PE stands at 9.57 below the industry average of 33.3, and below the stock market average represented by the S&P 500 average of 17.29. The company is currently trading below the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 7.78x to 52.31x trailing 12-month earnings. T's current Price/Sales of 1.3 is below the average of its industry of 3.84. T’s head to head comparison to its main competitor shows that the company has one of the highest gross margin in comparison to its main peers, but one that is below the industry average. Also it is the same case with the operating margin. The company has comparable revenue growth for the most recent quarter from the selected competitors, but one below the industry average 14% growth in revenues. T trades at lowest P/E ratio in comparison to the main peers, but at highest P/S ratio. T’s twelve trailing months EBITDA is $48.87 billion, nearly leveled with the main competitor VZ’s EBITDA of $48.57 billion. The stock is currently trading below its intrinsic value of $36.48, this suggests that the stock is undervalued at these levels. The beta of 0.33 implies lower volatility of the stock with respect to the S&P 500. T has shown favorable earnings consistency over the last five years. Moreover, the company’s earnings in the last 5 years have grown by 10.58%. The current quarter earnings in comparison to the same quarter last year have increased by a phenomenal 292%. T total Debt/Equity of 81.75 is above the required maximum, but it is below the industry average of 103.5. T’s current price levels are above the maximum level, 18.08% below the 52 week high of $39.00, and the technical analysis give a negative view of the stock. The majority of the analyst ratings are hold. T has a dividend payout ratio of 53% and a twelve trailing months dividend yield of 5.7%.

About T

AT&T Inc. (AT&T) is a holding company and a provider of telecommunications services in the United States and worldwide. Services offered include wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services, telecommunications equipment, managed networking, and wholesale services. AT&T operates in three segments: Wireless, Wireline and Other. Its Wireless subsidiaries provide both wireless voice and data communications services across the United States. Wireline subsidiaries provide primarily landline voice and data communication services, AT&T U-verse high-speed broadband, video, and voice services (U-verse) and managed networking to business customers. In December 2013, AT&T announced that it had closed the transaction to lease rights to approximately 9,000 of its Company-owned wireless towers to Crown Castle International Corp., as well as the sale of approximately 600 AT&T towers.

Competitor Comparison

AT&T, Inc. (NYSE: T) N.V.

Highlights

AT&T Inc. provides telecommunications services to consumers, businesses, and other providers in the United States and internationally. The stock closed yesterday’s trading session at $31.95. In the past year, the stock has hit a 52-week low of $31.90 and 52-week high of $39.00. The intrinsic value of the stock is above the current price. T has a market cap of $169.58 billion and is part of the Technology sector.           

·   Strong brand image

·   Leading market position

·   Robust financial position

·   Geographic concentration

·   Loss of exclusivity of iPhone

T Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. T's 52 week high is $39, current price is $31.95, is 18.08% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 9.57 the average industry P/E ratio is 33.3 and is below the S&P 500 P/E ratio of 17.29.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.04% of T stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

T is trading in the range of $31.90 - $35.16 in the past 30 days. The stock has been showing support around the level of $31.90 and resistance in the $36 range. The stock is trading below the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 35.31. As can be seen from the graph on page 1, 2013 started good for T, continuing its run from late 2012 (blue line). In April the stock was able to close at $39, above the October 2012 high of $38.34. However, that was all the stock had to show. From May until October the stock fell, showed some recovery during October and continued its fall until present. On the way down, it went through all the major support levels and is currently at lowest point since April 2012. However it may be that the stock has found its support around $32. Our indicators give a negative view of T.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 6 Buy, 2 Outperform, 24 Hold, and 1 Underperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. T’s annual EPS for the last 5 years were 2.05, 3.35, 0.66, 1.25, and 3.39 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. T’s Total Debt/Equity of 81.75 is above the required maximum, but it is below the industry average of 103.5.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. T’s EPS growth for this quarter relative to the same quarter a year earlier is 292.06%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. T’s annual earnings growth rate over the past five years is 10.58%, below our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.