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Why You Should Wait for a Correction to Buy AT&T Stock

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As of January 24, AT&T (NYSE:T) has fallen 1.5% so far in 2020. The stock has risen 25.8% in the last 12 months.

AT&T’s stock returns

Notably, AT&T stock is trading 33.1% above its 52-week low of $28.92. However, the stock is just 3.0% below its 52-week high of $39.70. While the stock has been impressive in 2019, it has fallen 8.4% in the last three years. In contrast, the stock has risen 17.0% in the past five years.

Forward PE ratio

AT&T’s forward PE ratio is 10.67x. The company’s adjusted EPS will likely rise by 1.4% in 2020 and 5.0% in 2021. The company’s earnings will likely grow 4.12% compounded annually in the next five years. The stock is grossly overvalued, expensive, and due for a correction based on the growth. If the earnings or revenue miss, AT&T stock has significant downside potential.

AT&T looks overvalued based on its estimated five-year PE-to-growth ratio of 2.64x.

Analysts’ recommendations for AT&T stock

As of January 24, 31 analysts from various brokerage firms have been actively tracking AT&T stock. Notably, about 14 rated the stock as a “buy,” 15 rated the stock as a “hold,” and two rated the stock as a “sell.” Approximately 48.4% of the Wall Street analysts gave the company a “hold” recommendation.

Analysts’ 12-month mean target price for the stock is $39.31, which indicates a potential upside of about 2.1% based on its closing price of $38.50 on January 24. The company’s lowest 12-month target price estimate is $20, while the highest 12-month target price estimate is $47.

Analysts’ expectations

On Wednesday, AT&T is scheduled to release its fourth-quarter earnings before the markets open.

For the fourth quarter, analysts expect the company to report revenues of $46.95 billion, which implies a fall of 2.2% from $47.99 billion in the fourth quarter of 2018. For the same period, analysts expect AT&T’s adjusted EPS to be $0.87, which implies a rise of 1.2% from $0.86 in the fourth quarter of 2018.

In the fourth quarter, AT&T will report the net losses of traditional pay-TV customers due to intense competition from online streaming players like Netflix.

Read Is AT&T Stock a Buy before Its Q4 Earnings?, Is It Time to Exit AT&T Stock?, and Will AT&T Stock Sustain Its Momentum in 2020? to learn more.

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