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AT&T Stock: The Ultimate Value Play?
Stock Analysis & Ideas

AT&T Stock: The Ultimate Value Play?

AT&T (T) is an American conglomerate with a strong foothold in the telecommunications arena.

The stock has been viewed by many as the ultimate dividend aristocrat and an excellent value play during turbulent market conditions. I’m bullish on the stock.

Market Outlook

The stock market seems to dislike growth stocks at the moment, with a shift to value being imminent amid interest rate hikes.

The reason for this is valuation linked; when interest rates rise, we usually see flatlining earnings in growth assets while more mature value assets sustain their linear earnings growth as they’re generally past the industry consolidation stage.

The discrepancy between value versus growth sentiment is there for all to see, which could provide cause for high conviction plays under the megafunds, subsequently giving rise to value stocks such as AT&T.

Value In-Store

The iShares Edge MSCI USA Value Factor ETF (VLUE) is an exchange traded fund managed by BlackRock (BLK). The ETF’s function is to seek the best value stocks in the U.S. market, and it has identified AT&T as its top pick, with the stock making up 7.09% of the vehicle’s holdings.

This speaks volumes, as it reassures us that AT&T is still a popular pick under the big institutional investors after the conglomerate restructured its business the past year, in turn, casting doubt on its fundamentals.

If we look at AT&T’s stock on a stand-alone basis, it’s clear that it’s undervalued relative to its five-year normalized average. The stock is trading at a price-to-sales discount of 16.50%, a price-to-cash flow discount worth 12.59%, and a price-to-earnings discount amounting to 22.76%.

Earnings Expectations

AT&T’s management team hasn’t given away much before its fourth-quarter earnings report, apart from the fact that it thinks HBO subscribers will reach the 70million to 73 million range, translating into a free cash flow of $26 billion, assuming the other business units resume linear growth patterns.

I had a look at the balance sheet for any deferred items. I noticed that the firm is sitting on $63.405 billion in deferred taxes, which investors should consider risky.

However, I see a tradeoff in this with AT&T’s Beneish M-score of -2.83, suggesting that accounting has been conservative during the past quarter, which could’ve understated earnings.

Wall Street’s Take

Turning to Wall Street, AT&T has a Moderate Buy consensus rating, based on five Buys and four Holds assigned in the past year. The average AT&T price target of $29.95 implies 14.1% upside potential.

Final Thoughts

AT&T is the ultimate value play going into 2022. Institutional investors still find this stock very attractive, and it’s easy to see why when considering market circumstances.

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