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Is AT&T Stock Going to Surge Higher?

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With a year-to-date return of 35.7%, AT&T (T) stock is the top performer among the telecom stocks. The stock has outperformed the broader US indexes. The S&P 500 and the Dow Jones Industrial Average have risen 27.3% and 21.1%, respectively, year-to-date.

Meanwhile, Sprint (S) stock has fallen 9.8% this year. Plus, T-Mobile (TMUS) has reported a year-to-date gain of 20.0%.

AT&T posted mixed earnings results in the third quarter. The telecom company missed its revenue estimates while beating its earnings estimates. AT&T posted adjusted EPS of $0.94 in the third quarter. The number beat analysts’ expectations of $0.93 per share. The company’s revenues reached $44.6 billion in the third quarter. The revenues missed analysts’ estimates of $45.0 billion and fell 2.5% year-over-year.

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Analysts’ views on AT&T stock

Citi analyst Michael Rollins covers AT&T stock and suggested that investors buy the stock on favorable financial progress. According to a December 18 report from TheFly, “The aggregate financial performance for AT&T is moving ahead faster than initially expected on the heels of stronger asset monetization, Rollins tells investors in a research note.”

The report added, “He continues to expect the company’s entertainment and wireless segments to show better metrics in 2020 after a ‘mixed’ Q4. The analyst recommends buying AT&T shares based on the ‘positive optionality’ associated with its three-year operating and capital allocation plans.”

Today, about 44.8% of the 29 analysts covering AT&T stock recommend a “buy,” while 48.3% of the analysts have a “neutral” view. The remaining 6.9% of the analysts recommended a “sell.” The current average target price of $39.02 reflects a potential upside of 0.7% from the closing price of $38.74 on Wednesday.

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HBO Max

In May 2020, AT&T’s WarnerMedia unit intends to launch direct-to-consumer video-streaming service HBO Max. The streaming service would initially include 10,000 hours of content. HBO Max would cost about $14.99 per month, the same price as HBO Now.

The online video-streaming market appears to be getting crowded with multiple recent or planned launches. Last month, Walt Disney Company (DIS) launched Disney+, while Apple launched Apple TV+. In addition, Comcast’s (CMCSA) NBCUniversal segment plans to launch an online video-streaming service called Peacock in April 2020.

Disney+ costs $6.99 per month, while Apple TV+ costs $4.99 per month. Peacock will likely cost $4.99 per month for an ad-supported version and $10 per month for an ad-free version. To learn more, read Can Comcast’s Peacock Lead Its Stock Up in 2020?

According to a December 17 Forbes report, “AT&T has also indicated that it will invest an additional $4 billion in content for HBO Max over the next ~5 years. We estimate that the service could add incremental U.S. revenues of about $4.3 billion for AT&T by 2024.”

AT&T’s capital allocation plan

In October, AT&T announced a capital allocation plan for 2020–2022. The program includes nearly $75 billion in shareholder returns, deleveraging, continued evaluation of its asset portfolio, and a commitment for no material M&A.

AT&T’s management expects its net-debt-to-adjusted EBITDA ratio to reach 2.25x by 2022. The telecom company expects to make about $10 billion in asset monetization next year.

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AT&T stock’s valuation

Analysts expect AT&T’s revenues to rise 6.3% in 2019 to $181.4 billion compared to 6.2% growth the previous year. Its sales will likely only increase 0.4% in 2020 to $182.2 billion. Analysts also expect its adjusted EPS to rise 0.6% in 2019 compared to 15.4% growth in 2018. However, its earnings will likely rise 1.7% in 2020.

AT&T stock has a PE (price-to-earnings) ratio of 10.77x and an EV-to-revenue ratio of 2.49x for 2020. The stock appears expensive due to sluggish revenue and earnings growth projections.

Stock performance

AT&T stock closed 0.6% higher on Wednesday and ended the trading day at $38.74. The stock was trading 2.4% below its 52-week high of $39.70 and 44.6% above its 52-week low of $26.80.

At Wednesday’s closing price, AT&T’s market cap stood at $283 billion. It reported returns of 1.5% in the trailing five days and -2.3% in the trailing month. The stock has gained 30.2% in the trailing 12 months.

AT&T closed 2.2%, 1.4%, and 4.4% above its 20-day, 50-day, and 100-day moving averages of $37.92, $38.19, and $37.09, respectively. The stock’s 14-day relative strength index (or RSI) score of 58.8 signified that it was neither oversold nor overbought.

AT&T’s lower, middle, and upper Bollinger Band levels are $36.99, $37.92, and $38.84, respectively. On December 18, it closed near its upper Bollinger Band level, which suggested that it was overbought.

In April 2018, T-Mobile and Sprint announced their plans to merge. This year, the FCC and the Department of Justice approved the merger deal. However, the merger deal is still not closed, as it is currently facing an antitrust trial in New York. Currently, about 14 Democratic state attorneys general are against the combination due to antitrust concerns. See Dish Chair Testifies in T-Mobile–Sprint Merger Trial to learn more.

Read AT&T Declares Dividend and Share Buyback Plan and AT&T Stock: Jim Cramer’s Views, Wall Street’s Preference to learn more about AT&T.

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