Does AT&T Stock Have Room to Grow after Its Rally?

AT&T (T) stock fell 0.2% on Monday and closed the trading day at $37.32. At this closing price, the company’s market capitalization stands at around $272.6 billion. The stock is trading 6.0% lower than its 52-week high of $39.70. Also, it’s trading 39.3% higher than its 52-week low of $26.80. AT&T stock was also down 0.5% as of 11:15 AM ET on December 3.

The stock has risen 30.8% this year, as of December 2. And it also outperformed telecom rivals like T-Mobile (TMUS) and Sprint (S), which generated returns of 22.1% and -1.4%, respectively, this year. But is there room for even more growth?

AT&T’s valuation

Currently, AT&T stock is trading at 10.54x its 2019 estimated EPS of $3.54. The stock is also trading at 10.37x its 2020 estimated EPS of $3.60. Analysts expect its EPS to rise 0.6% in 2019 and 1.7% in 2020.

AT&T’s earnings will likely rise at a compound annual growth rate of 4% over the next five years. So AT&T stock looks overvalued, considering its expected earnings growth going forward.

AT&T Stock: Analysts’ recommendations and target price

Out of 29 analysts, 13 analysts have a “buy” rating on the stock—which is down from 14 last month. Two analysts have a “sell” rating on the stock, up from one last month. Meanwhile, the remaining 14 analysts have a “hold” rating on the stock, unchanged from last month.

Currently, analysts have a 12-month target price of $39.02 for T stock. On December 2, the stock was trading at a discount of 5% to analysts’ 12-month target price.

Comparatively, T-Mobile stock was rated a “buy” by 16 out of 21 analysts, or 76% of the analysts surveyed. Only one out of 16 analysts recommends Sprint stock as a “buy.”

Financial performance

In the Q3 of 2019, AT&T’s EPS of $0.94 not only beat analysts’ estimate of $0.93 by 1.1% but were also 4.4% higher than its $0.90 in Q3 of 2018. In Q3 of 2019, AT&T’s revenue fell 2.5% year-over-year to reach $44.6 billion, $407 million below the Thomson Reuters average consensus revenue expectation.

AT&T added 101,000 postpaid phone net customers in the third quarter. T-Mobile added 754,000 postpaid phone net customers, while Sprint reported 91,000 net losses in the same quarter.

However, AT&T lost 1.2 million pay-TV customers due to intense competition from online streaming services. It also lost 195,000 over-the-top customers.

According to a FierceVideo report on December 2, a MoffettNathanson analyst expects that “AT&T’s video subscriber losses will begin to level off near the middle of 2020, but warned that cable companies’ shift in focus toward profitable subscribers could lead to an acceleration in their subscriber losses.”

The report added, “As each cable company continues pushing Flex and other OTT products to their customer base, cord cutting becomes ever easier … This could add further pressure to the pay TV ecosystem and keep the rate of cord cutting elevated in 2020.”

Analysts expect AT&T’s revenues to rise by 6.3% year-over-year in 2019 to $181.4 billion. This number compares to 6.2% growth in the prior year. Note that sales are likely to increase by around 0.4% in 2020 to $182.2 billion.

Technical levels for AT&T stock

With a 14-day relative strength index score of 41.59, the stock is currently neutral. On December 2, AT&T stock closed near its lower Bollinger Band level of $36.66. This number suggests that the stock is oversold.

AT&T stock closed 2.2% above its 100-day moving average of $36.53 yesterday. However, the stock was 2.8% and 1.8% below its 20-day and 50-day moving averages of $38.39 and $38, respectively.

See AT&T Stock: Jim Cramer Likes It—Should You Buy? and AT&T’s Dividend Yield Gets More Attractive to learn more.