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Wednesday, October 4, 2023

AT&T Stock: Is It A Buy Right Now? Here’s What Earnings, Charts Show

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AT&T (T) is one of the most recognizable wireless phone carriers in the U.S. The telecom and media conglomerate can be viewed as a safe haven when stock markets turn volatile and makes for a solid defensive play. AT&T also maintains a high 6.6% annualized dividend yield in a relatively low interest rate environment. Should investors consider buying AT&T stock?


Currently, the stock market is in a correction, which means it’s not an optimal time to be buying stocks  but still very important to be identifying top contenders for your watchlist. Investors should seek out leading stocks in leading industry groups that are outperforming the market for when the market returns to a confirmed uptrend.

AT&T Technical Analysis

AT&T stock had a rough second half of 2021 as well. Shares attempted to breakout from a flat base with a 31.99 buy point earlier in the year. But the breakout failed in late May when share gapped below the 50-day line in heavy volume. Shares of AT&T then fell further below their 200-day moving average as well.


Second-quarter earnings were released to a very negative reaction from investors, causing a gap down in heavy volume. The firm reported on July 21 which sent shares down nearly 8% on the day. The recent earnings report also put shares below their 50-day and 200-day lines, which is a big negative. Investors ideally want to seek out stocks that are above support at their moving averages.

The stock will need to do some repair work following this sell-off and ideally rebuild a new base and buy point before it becomes actionable. This would give the stock a point from which to break out. The stock’s relative strength line has also pulled back a lot amid the recent decline on July 21.

AT&T stock maintains a less-than-ideal Relative Strength Rating of 38, which is below the minimum of 80 for portfolio contenders. The RS line measures a stock’s performance against the S&P 500. Ideally, an RS line should be at or near a new high when a stock breaks out.

AT&T Stock: WarnerMedia, Discovery Merger

In May of 2021, AT&T agreed to merge its WarnerMedia business with Discovery (DISCA). The wireless service provider planned to merge its WarnerMedia business with Discovery in a deal that could close sometime within the second quarter.

The WarnerMedia division and Discovery are merging to form Warner Bros. Discovery, which will trade as WBD stock. Warner Bros. Discovery is expected to start trading early in the second quarter. AT&T shareholders will own 71% of the new company and Discovery shareholders will own 29%.

The new company will include streaming video services HBO Max, Discovery+ and CNN+, and will compete with Walt Disney (DIS), Netflix (NFLX) and others. But it also will have a host of legacy pay-TV channels and production studios. Included are such brands as HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, TNT, TBS, Eurosport, Magnolia, TLC and Animal Planet.

AT&T Earnings

AT&T was expected to report second-quarter revenue of $29.45 billion but beat views, showing revenue of $29.64 billion. Revenue still declined 17% on a year-over-year basis. Meanwhile, the firm also beat bottom-line expectations with EPS of 65 cents a share. But this was also a year-over-year decline of 11%, which isn’t ideal.

Moreover, AT&T cut its annual dividend by 46% to $1.11 per share because of the WarnerMedia spinoff. Still, AT&T offers a dividend yield of 6%, which is quite strong in the current market.

“Management did not commit to any dividend-specific actions going forward, notably deferring to the board on any future dividend growth, which we believe is the most critical aspect,” said Raymond James analyst Frank Louthan in a report. “We remain hopeful for a token dividend increase, with buybacks also a possibility. We expect more clarity on this before year-end.”

The big reason AT&T’s Q2 earnings sent the stock lower was that the company lowered its full-year free cash flow outlook. AT&T lowered its full-year free cash flow guidance to a $14 billion range from a $16 billion range.

Free cash flow generated from continuing operations in Q2 was $1.4 billion amid higher capital spending, the company said. That missed consensus estimates of $4.62 billion in FCF.

Finally, AT&T said it added 813,000 postpaid wireless phone customers vs. estimates for a 562,000 gain. AT&T’s wireless service revenue climbed 5.2% to $19.9 billion vs. estimates of $19.7 billion.

Is AT&T Stock A Buy?

AT&T should not be bought right now given that the stock has just crossed below key moving averages and needs to do some repair work before a new buy point is available. Investors also want to prioritize stocks that have seen growth of at least 25% in earnings and sales in recent quarters. T stock currently falls far below that.

Despite its 6.6% dividend yield, AT&T stock is not one to be added to your portfolio right now. Investors will need to wait for an improvement in the stock’s fundamentals. Investors can check IBD stock lists and other IBD content to find the best stocks to buy or watch.

Follow Fox on Twitter at @IBD_RFox for more commentary on the best stocks to buy and watch.


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