T – Now is the Time to Hang Up on AT&T Stock

by Louis Navellier | November 22, 2013 10:30 am

ATTLogo T   Now is the Time to Hang Up on AT&T StockWelcome to the Stock of the Day!

An aggressive stock buyback program in the works? A 5.0% dividend yield? New mergers announced by the month? What isn’t to like about AT&T (T[1])?

Well, in today’s Stock of the Day I reveal how AT&T needs to “raise the bar” before it gets a buy recommendation from me.

Company Overview

AT&T is the telecom titan that can trace its roots back to Alexander Graham Bell and the Bell Telephone Company. For nearly a hundred years, AT&T enjoyed a monopoly over phone service in the U.S. And while the government forced a breakup of the company in 1984, AT&T still remains a market leader to this day. Out of the 24 telecom services companies, AT&T ranks first for market cap, sixth for earnings growth and seventh for both long-term growth rate and its 5.0% annual dividend yield.

Earnings Buzz

Looking ahead to its fourth-quarter earnings announcement, which is due out at the end of January, it’s shaping up to be a slightly stronger report than past quarters. Currently, analysts expect just 1.4% annual sales growth but 13.6% earnings growth. Sales are expected to accelerate slightly through the end of 2014 as the telecom sector heats up.

Future Outlook

And AT&T is working overtime to capture a bigger piece of the pie with its billion-dollar merger with Leap Wireless (LEAP[2]). AT&T is also exploring the possibility of buying out the U.K.’s Vodafone (VOD[3]), a merger that would create the world’s largest telecommunications operator by sales.

AT&T also recently expanded its 4G LTE network as part of a $21 billion capital expenditure program for 2013. But it will take a few years for the company to see a real return on these investments, so I can’t ignore its lackluster current fundamentals, which I’ll discuss next.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader[4] ratings system. This Conservative stock maintained a buy rating in my screens for the first several months of 2013. But over the summer, the stock sustained a steep dropoff in institutional buying pressure, sending the stock down into sell territory.

T currently receives a D-rating for its Quantitative Grade. Meanwhile, the company could stand to improve its financial statements: Sales growth, earnings surprises, cash flow and return on equity are all C- or D-rated. AT&T receives a C for its Fundamental Grade.

Bottom Line

As of this post on November 21, I consider T a D-rated sell. With its aggressive capital expenditure program, its hefty share repurchase plan and its generous dividend, the stock could very well bounce back, but for now I want to play it safe.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website[5]!

Endnotes:
  1. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  2. LEAP: http://studio-5.financialcontent.com/investplace/quote?Symbol=LEAP
  3. VOD: http://studio-5.financialcontent.com/investplace/quote?Symbol=VOD
  4. Portfolio Grader: http://www.navelliergrowth.investorplace.com/portfolio-grader/
  5. my Portfolio Grader website: http://navelliergrowth.investorplace.com/portfolio-grader/

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