Is a Bottom in Place with AT&T?

Posted Aug 6th 2010 2:00PM by Joseph Lazzaro
Filed under: AT and T (T), Stocks to Buy

AT&T logo The stock of Telecom giant AT&T Corp (T), first discussed here on February 11, 2009, at a price of $26, has accelerated out of a bottom, following a good second quarter in which the company reported earnings of 61 cents per share, well above the First Call estimate of 57 cents.

Further, AT&T is well-positioned to remain a force in the Internet/communications revolution in the years ahead. Look for T's revenue to grow about 2-3% in 2010, led by an impressive increase in cell phone customers (which numbered about 90 million as of July 2010), and wireless data service customers.

Also, 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. Finally, company-wide efficiency improvements and a $1.68 annual dividend round-out the positive story.

The First Call FY2010/FY2011 EPS estimates for T are $2.34 to $2.49. Each EPS estimate looks about 5% low, according to my analysis.

Technically, as noted, T found support near $24 this summer, and has since moved back above the key, 50-day moving average -- a sign that institutional investors have resumed adding to their positions.

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 to $31, if it fails to rise above $32.

Stock Analysis: I consider AT&T Corp to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% 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 50% of my T position before October 2010, and I'd put a sell/stop loss at $18.

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