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Should I Buy T Stock? 3 Pros, 3 Cons

AT&T (T) can’t seem to get any traction. Following its fourth-quarter report, T stock is off a grueling 4.6% in today’s trading.

AT&T-t-stock-dividend-stocksWith today’s selloff, the price of AT&T stock has dropped 8% in the past year, despite a huge bull market lifting the S&P 500 about 30% in 2013. Even rival Verizon (VZ) managed to post a roughly 9% gain in that time.

The irony is that T’s earnings report wasn’t all that bad. Profits came to 53 cents per share and revenues climbed by 1.8% to $33.2 billion. Wall Street was looking for earnings of 50 cents per share and revenues of $33.1 billion. But then again, investors have concerns about mounting competition and pressures on growth.

Despite all this, maybe the concerns are overblown. Could there be an opportunity for T stock? To see, here’s a look at the pros and cons:

T Stock Pros

The network: AT&T continues to make huge investments in its network infrastructure, coming to $25 billion last year. Of course, the main focus has been on rolling out its LTE network, which is expected to cover 300 million people by the end of 2014. On an annual basis, AT&T’s mobile data segment booked about $23 billion in revenues, with a growth rate of 17%. But AT&T has also leveraged its network with the U-verse business (it includes high-speed broadband, video and voice services). Annual revenues are running at $13 billion, and the growth rate is a sizzling 28%.

Innovation: Innovation is a major priority at AT&T. And so far, it looks like the company is making savvy moves, particularly with its push into the cloud. To this end, AT&T has rolled out NetBond, which involves alliances with top providers like IBM (IBM), Microsoft (MSFT), CSC (CSC) and Equinix (EQIX). But perhaps the most interesting growth initiative is Digital Life, which allows customers to use their smartphones as remote control devices with homes and cars. All in all, the opportunity could be huge, adding another nice revenue stream — AT&T already has agreements with companies like GM (GM), Ford (F), Nissan, Audi, BMW and Tesla (TSLA)

Financials and dividend: AT&T stock continues to crank out huge amounts of cash flows, which came to $35 billion in 2013. With this, the company has has repurchased about 366 million shares of T stock for about $13 billion and shelled out $10 billion in dividend payments. As of now, the yield is a juicy 5.5%, making AT&T one of the highest dividend stocks in the Dow. It’s also a good bet that the company will keep up a strong focus on the payout — T stock has increased its dividend for 29 consecutive years.

T Stock Cons

Competition: While there are only a handful players in the US carrier market, stiff competition remains. After all, the market is fairly saturated, which means that the operators tend to focus on taking share away from competitors with new promotions and discounts. T-Mobile US (TMUS) in particular has been aggressive with its so-called “uncarrier” marketing, in which it pays for termination fees to snag new customers. And it does look like it’s taking a toll on AT&T. In the latest quarter, the company added only 566,000 contract customers compared to T-Mobile’s 869,000.

NSA scandal: On the AT&T earnings call, CEO Randall Stephenson noted that the continuing revelations about the company’s involvement with the NSA are having an impact. In other words, it could get tougher to acquire a rival like Vodafone (VOD). AT&T has already backed off a bid, even though a deal would be a smart way to find growth. Of course, this doesn’t mean a transaction will be impossible. But it could result in a prolonged and expensive process, which could involve making more concessions.

The Apple factor. AT&T is the largest seller of Apple (AAPL) iPhones. While this has been a good thing for some time, there may now be headwinds. As seen with Apple’s latest earnings report, the company is losing momentum with shipments, which came to 51 million — 4 million short of Wall Street’s expectations. If sales continue to fall short of investor’s hopes, it could hurt T stock.

T Stock Verdict

There are certainly major headwinds for T stock. The competition remains intense, Apple’s iPhone franchise appears to be losing some of its lust, and the NSA scandal is having an impact.

Yet despite all this, AT&T has clear advantages. After all, it has a state-of-the-art network. More importantly, the company has been adept at monetizing that network with mobile data and U-verse. There is also lots of potential with the Digital Life offerings and NetBond.

Besides, AT&T is certainly attractive among dividend stocks, with its 5.5% yield. And the forward price-to-earnings ratio is an attractive 11X.

So should you buy T stock? Yes — for now, the pros outweigh the cons.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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