Valuation analysis for AT&T Inc. (NYSE:T)

This valuation analysis is the eighth in a series of reports that will at its end cover all 30 of the DJIA components.  The goal of these combined reports is to paint a clearer picture of the current valuation of the DJIA as that related directly to earnings growth and relative PE.  The raw data and all charts and graphs for these reports are already available to subscribers of Stock Traders Daily.

AT&T Inc. (NYSE:T) is a stock that most investors love for its yield, and the dividend is steady.  Reasonably that is the rationale for the stock's appreciation, especially when relative interest rates in the open market are so low.  Currently T is paying $0.46 per quarter, $1.84 per year, which is a 5.2% yield.  Anyone searching for income appreciates that, but income from a stock is much different than from bonds, and that must be remembered when evaluating T.

 T AT&T Dividend

Importantly, for a stock to remain attractive to income investors the company must avoid surprising events and offer the most stability possible in terms of EPS, and in many cases that means at least no meaningful EPS decline.  However, something very interesting just happened (recent earnings report) for T.  The company experienced its first negative quarterly growth rate since Q4 2011.  There is not enough evidence yet to suggest EPS deterioration will continue, but this absolutely should be watched.


Additionally, this change in EPS growth has made shares of T look rich on a PEG Ratio Basis.  Before this hiccup the PEG ratio was about 1.64, but after the hiccup PEG has changed to just over 3.  That means if the company does not experience a recovery in EPS almost immediately valuation will appear quite stretched, and that could result in equity price decline.


Technical Take:

According to our real time trading report for T the stock has come relatively close to longer term support recently and thus far longer term support is holding.  If it continues to hold we should expect the stock to increase back to longer-term resistance, but if support breaks we should expect rather aggressive declines because no additional longer term support levels exist below the one that has been tested recently.


If price is a reflection of risk as that is perceived by Smart Money investors and the hiccup experienced in the EPS growth rate for T recently turns out to be meaningful, we would believe that a break of longer term support would be a leading indicator.  Therefore, if longer term support breaks not only would it be a red flag and signal additional price decline, but it could be a tell w/re to future EPS results as well.  Thus far, though, support is holding.