Long-suffering investors in AT&T (NYSE:T) stock got much-needed good news last week when the company provided a business update at Citi’s AppsEconomy Conference.
The news sent T stock more than 5% higher in the next day’s trading.
With the company’s shares up more than 14% over the past month, it appears that they bottomed in mid-December at a 52-week low of $22.02.
As I write this, T is trading above $26. So it is possible $30 could be in the cards by the end of the first quarter. The question is whether it will stay there. Here’s a look at both sides of the argument.
T Stock Will Stay in a Tight Range in 2022
I’ve been a major bear for several years because of its silly purchase of Time Warner. However, now that it’s in the final stages of spinning off Warner Media, there is no question its core business is alright.
In September, I continued to sing a bearish tune about AT&T. “As an investor, you must consider whether T stock is even the best wireless and broadband stock to own,” I wrote on Sep. 23. “And I’m not just talking about the same old comparison between itself and Verizon (NYSE:VZ). That’s been going on for years.”
AT&T currently trades at 1.09x sales. Verizon, whose market cap is 20% higher at $224 billion, trades at 1.67x sales. AT&T has one of the lowest P/S in the telecom services industry. That’s because of its debt overhang.
I stated that it was only a buy in the mid-to-low teens in December. However, the latest update from AT&T management suggests I was being overly harsh about its prospects.
The Good News Update
In the fourth quarter, its all-important wireless business added 880,000 postpaid phones. That brings it to 3.2 million for the entire fiscal 2021. That’s the best annual postpaid phone net adds in more than a decade.
In 2021, it added about one million fiber subscribers in 2021, AT&T’s fourth consecutive year of delivering a million or more news customers. While that doesn’t suggest its growth is accelerating, it also doesn’t mean it’s decelerating.
Business is generally good.
However, analysts remain extremely cautious about its core business.
Here’s what RBC analyst Kutgun Marai had to say about it after absorbing AT&T’s latest update:
“‘We don’t expect today’s announcement will change the negative narrative,’ Barron’s reported the analyst said in a note to clients. AT&T has broadly delivered very strong subscriber results for the last six quarters but investors remain cautious on the sustainability of this strength and financial headwinds from wireless promotional activity, Marai noted.”
In addition, New Street’s Jonathan Chaplin argues that the addition of 270,000 fiber subscribers was 32,000 short of Wall Street’s consensus and less than the 289,000 it added in the third quarter.
So, while the update was upbeat, it left investors with as many questions as answers heading into 2022.
The Bottom Line
MadMoney host Jim Cramer reportedly said the following about AT&T:
“Today it got upgraded. … I said today at $22, the hate is over. I’m no longer putting the hate on AT&T. Enough is enough. It’s gotten low enough.”
Sure enough, he was right. It’s up more than 15% since.
However, it’s one thing to bounce off a 13-year low. It’s another to push through $30. Despite the good news, I see T stock trading in a tight range between $25 and $30 until the spin-off of Warner Media and its subsequent merger with Discovery Communications (NASDAQ:DISCA, NASDAQ:DISCB, NASDAQ:DISCK) is completed.
While it looks as though its worst days are behind it, I have a hard time getting excited about T stock. With a significant dividend cut coming, $30 is about as high as I can see it going in the first half of 2022.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
