AT&T: Demonstrated business models have their rewards

Posted Oct 19th 2009 2:30PM by Joseph Lazzaro
Filed under: AT and T (T), Stocks to Buy

It goes without saying that one investment theme favored here concerns companies with demonstrated business models, which is why I'm Reiterating my Buy rating for AT&T (NYSE: T), first recommended on July 9, 2009 at a price of $25.89.

AT&T's shares have meandered somewhat since the February Buy rating, but that in no way changes T's low-risk, decent-return-on-equity story.

Further, AT&T's successful iPhone providership has added more than two million customers – a major reason why wireless revenue growth should exceed 10% in both 2009 and 2010. The company's broadband division will also post modest revenue increases in 2009 and 2010. A sizable, dependable dividend also limits the downside risk.

Technically, AT&T's stock chart over the past nine months has been range-bound between $22 and $27. The stock will likely lag the economic recovery by three to six months, but a $40 target is seen, as the recovery gains steam in 2010. The First Call FY2009/FY2010 EPS estimates for T are $2.07 to $2.23.

Stock Analysis: AT&T is a low-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in T now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your T position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $18.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: inthenews, t