AT&T's Meandering Should End Soon

Posted Mar 18th 2010 6:00PM by Joseph Lazzaro
Filed under: AT and T (T), Stocks to Buy

The stock of AT&T Inc. (T), first written about here on February 11, 2009, at a price of $25.89, has meandered at/near $26 for the better part of a year, and that is a disappointment.

Even so, T remains well-positioned for the Internet/communications revolution in the years ahead. Look for T's revenue to grow about 2-4% in 2010, led by an impressive increase in cell phone customers (which numbered about 85 million as of January 2010) and wireless data service customers.

Further, AT&T's successful (but company-subsidized) iPhone providership has added more than 14 million iPhone customers as of January 1, 2010 -- a major reason why wireless revenue growth should exceed 10% in 2010; further, AT&T's 3G smartphone portfolio also is impressive.

Meanwhile, broadband subscriber gains should be modest in 2010, but will nevertheless help offset continued competitive pressure in its landline division, which lost 11% of its voice subscribers in 2009. A strong balance sheet and an annual dividend of $1.68 add to the positive mix.

The First Call FY2010/FY2011 EPS estimates for T are $2.19 to $2.37. Each EPS estimate looks about 5% low, according to my analysis.

2010 Outlook: I view AT&T as a long-term play, but if investors are looking to sell T within the year, it's probably best to take your profits after it rises to $30-31, if it fails to rise above $32.

Stock Analysis: I consider AT&T to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, and I liked the stock enough to buy it, I'd 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, I wouldn't buy more than 75% of my T position before April 2010 and I'd put a sell/stop loss at $18.

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

Tags: att, featured, iphone, smartphone