Welcome 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)?

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). AT&T is also exploring the possibility of buying out the U.K.’s Vodafone (VOD), 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 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!