RD's Picks

This morning AT&T released a good earnings report; in line with analysts estimates; double digit year over year earnings growth after one-time charges and the stock loses over 2.5% on a strong up day???

I read through a transcript of the earnings call - strong wireless growth, lots of new subscribers, low churn rates; margins are expected to expand going forward, forward revenue and earnings guidance reiterated, continuing with the stock buyback, on or ahead of schedule in lowering costs after the Bell South merger. Expectations for 2008 are mid-single digit revenue growth and double-digit growth in adjusted earnings per share.

Basically, I didn't see anything negative in the conference call transcript. I did find an Investor's Business Daily report that states, "Despite AT&T's solid wireless results, some Wall Street analysts are betting on a slowdown in 2008, partly because of the phone company's geographic makeup."

At today's closing price of 35.75,it trades at 11.24 times forward earnings estimates and the stock's dividend yield is 4.4% with a payout ratio of 73%. With a two-year treasury yield at 2.3% and the ten-year at 3.7%, there's a pretty substantial discount in T's stock price. With a safe dividend, growing revenues and earnings, on-going share buyback and a strong track record of raising the dividend, I don't see any reason T's share price should trade at these levels. I still believe the stock is a buy below 40 and could easily trade up to the mid-50's if they continue to hit estimates. I've pitched T as a good buy a couple times over the past month or so at higher prices, it looks even more attractive now that the market's put it at a deeper discount.

I added to my sloport position in T today and have been adding to my real account on dips at these levels.

Thanks for reading, comments welcome.

ETA: Link to Forbes article with similar opinion

Comments: View Comments |  Thursday January 24, 2008  |  Stocks: T,