Is Trending Stock AT&T Inc. (T) a buy it now?
AT&T (T) recently made Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Over the past month, shares of this telecommunications company have returned +2.3%, compared to the +7.4% change in the Zacks S&P 500 composite. During this period, the industry Zacks Wireless National , of which AT&T is a part, gained 1.6%. The key question now is: what could be the future direction of the title?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
For the current quarter, AT&T is expected to post earnings of $0.79 per share, indicating a change of -8.1% from the year-ago quarter. The Zacks consensus estimate has changed -0.3% over the past 30 days.
The consensus earnings estimate of $3.10 for the current fiscal year indicates a -8.8% year-over-year change. This estimate has changed by -0.1% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $3.13 indicates a change of +0.7% from what AT&T is expected to report a year ago. Over the past month, the estimate has changed by -3.1%.
With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent shift in the consensus estimate, along with three other factors related to earnings estimates, resulted in a No. 3 (hold) Zacks ranking for AT&T.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Expected revenue growth
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
In the case of AT&T, the consensus sales estimate of $38.39 billion for the current quarter indicates a year-over-year change of -12.6%. Estimates of $154.22 billion and $156.79 billion for the current and next fiscal year indicate changes of -8.7% and +1.7%, respectively.
Latest reported results and history of surprises
AT&T reported revenue of $40.96 billion in the last quarter, representing a -10.4% year-over-year change. EPS of $0.78 for the same period versus $0.75 a year ago.
Compared to the Zacks consensus estimate of $40.42 billion, reported revenue is a surprise +1.33%. Surprise EPS was +2.63%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus revenue estimates three times during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on. ), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
AT&T is rated A on this front, indicating that it is trading at a discount to its peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about AT&T. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.