AT&T is an American multinational conglomerate holding company based in Dallas, Texas. It is the world's largest telecommunications company and one of the largest mass media conglomerates.
It is one of the key providers of direct broadcast satellite services via DirecTV in the United States, ranked 18th among the world’s largest mobile operators with 135 million subscribers. It is one of the four largest contractors of the U.S. Defense Communications Agency.
But that’s how it is today. Back in 1984, Bell System was artificially broken up which led to the creation of 7 independent companies. This is how AT&T and Verizon Communications emerged. The “buy, break down into pieces and sell for a higher price” approach was very popular at the time. By the way, this is exactly what Edward Lewis played by Richard Gere was doing in Pretty Woman.
1. AT&T History
2. Fundamental Analysis of AT&T
3. Technical Analysis of AT&T
The company’s origin dates back to 1876 when Alexander Bell invented the telephone. In 1887, the Bell Telephone Company was founded, remaining a monopolist in the U.S. market of local and long-distance communications for a long time. In 1894, Bell’s telephone patent expired, fueling competition in the industry.
In 1925, a transistor and a photocell were invented by Bell Laboratories. Aside from that, the Unix operating system and the C programming language were originally developed by Bell Labs as well, which came as a bit of a surprise to me.
In 1927, the company launched transatlantic telephone service to London using a two-way radio. The cost of a three-minute conversation totaled $75. Only imagine what the monthly phone bill would be, given today’s massive usage of cell phones.
In 1931, the company acquired Lee de Forest's patents on electronic lamps and the first triode allowing to amplify a telephone signal. Being one step ahead, even with monopoly restrictions, does not sound so bad, does it?
Since radiotelephone communication was flawed, the first transatlantic cable was connected in 1956. The first trans-Pacific cable providing international telephone communication between Japan and the US was laid in 1964. 1927, 1956, 1964...
By today's standards, this seems to have taken so long but at the time it was nothing less than revolutionary. It’s hard to wrap our minds around it in 21 century because of how deeply information technology is woven into our everyday lives.
The break-up of the company marked a new chapter of AT&T. In 2005, AT&T merged with SBC Communications, becoming the largest company in the U.S. telecommunications sector. The company started actively taking over the remaining regional operators. It attempted to do the same with the U.S. branch of T-Mobile. However, the competitors and the monopoly committee did everything in their power to prevent the deal from happening.
Having acquired DirecTV for $48.5 billion in 2015, AT&T got into the mobile television, increasing the subscriber base up to reaching 129 millions. On June 21, 2018, it purchased the Time Warner conglomerate which owns Time Inc., Warner Bros. Entertainment, Time Warner Cable, CNN, HBO, Turner Broadcasting System, and The CW Television Network. These are the company’s cash flows.
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Fundamental Analysis of AT&T
It is safe to call the company a dividend aristocrat. The size of payouts is 5.59%. Compare these figures to the market ones which are 1.71%. In 2018, the company paid its shareholders $13,410,000,000. And yes, I did double-check the number of zeros, there is no mistake there. Number of employees is 246,000, with market capitalization being $270 billion.
The profit margins are obviously nowhere near those in the technological sector, but as far as the telecommunications sector goes, they are pretty solid:
- ROA with 2.50%,
- ROE with 7.50%,
- ROI with 7%.
Unlike the technological sector, the telecommunications sector is commonly believed to be more stable and less volatile, which is why there is an increase in demand for it in times of market instability.
Over the past four years, the sales have increased from $146 billion to $181 billion. EBITDA has gone up from $48.64 billion to $58.59 billion too. Based on net income in 2019, the company reported about $13 billion, while in terms of EPS it is about $2 dollars. In other words, with the current value being $37, P/E is 18.5 which is decent but also above average.
To get a better idea, we need to take a look at the trend of the recent reports. Based thereon, the company reaches 86 cents per share consistently. In terms of annual figures, we can expect $3.44. In that case, P/E moves to the undervalued area of 10.75, that too against the backdrop of solid dividend yield.
Technical Analysis of AT&T
Following the 15% market correction, AT&T failed to hold the ground. However, all short positions were bought with the very first price bounce, which evidences an increased interest in the issuer.
From a technical standpoint, the instrument found a support level at 27.47 in 2018, then at 33.03, and resistance level at 39.70 and 43. The current range is between 36.50 and 39.50.
In conclusion, I would like to say that this is an undervalued company which demonstrates stable performance. Given the impressive dividend payouts, it clearly sparks interest among traders who add it to the list of their personal assets.
Those who are worried about the current market situation may opt for partial accumulation to get the feel of the stock movement pattern. When trading with stop loss, it makes sense to wait for clear retention and the manifestation of strength against the index drop.
Аutor: Viktor Makeeu