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Does AT&T (T) Make for a Suitable Value Pick Right Now?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put AT&T, Inc. (T - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, AT&T has a trailing twelve months PE ratio of 14.19. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.30.
If we focus on the long-term trend of the stock the current level puts AT&T’s current PE slightly below its median over the past five years (which stands at 14.21). This suggests that the stock is undervalued compared to its own historical levels and thus it could be suitable entry point.
Further, the stock’s PE also compares favorably with the Zacks classified Wireless National industry’s trailing twelve months PE ratio, which stands at 16.24. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, the stock has historically always been undervalued than its peers since the beginning of 2014.
We should also point out that AT&T has a forward PE ratio (price relative to this year’s earnings) of 13.69 – which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for AT&T stock in the near term too.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, AT&T has a P/S ratio of about 1.52. This is higher than the Zacks categorized Wireless National industry average, which comes in at 1.45 right now.
However, AT&T has historically always been relatively undervalued compared to the broader market, in terms of the PS metric, over the observed term. Currently its PS compares much favorably with the S&P 500’s level of 3.08.
Notably, T is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, AT&T currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes AT&T a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 2.01, lower than the industry average of 2.23. Clearly, T is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though AT&T might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘D’. This gives T a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen three upward revisions and seven downward revisions in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past two months, while the full year estimate has inched lower by 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat bearish trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
AT&T is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 27% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Wireless National industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Does AT&T (T) Make for a Suitable Value Pick Right Now?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put AT&T, Inc. (T - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, AT&T has a trailing twelve months PE ratio of 14.19. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.30.
If we focus on the long-term trend of the stock the current level puts AT&T’s current PE slightly below its median over the past five years (which stands at 14.21). This suggests that the stock is undervalued compared to its own historical levels and thus it could be suitable entry point.
Further, the stock’s PE also compares favorably with the Zacks classified Wireless National industry’s trailing twelve months PE ratio, which stands at 16.24. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, the stock has historically always been undervalued than its peers since the beginning of 2014.
We should also point out that AT&T has a forward PE ratio (price relative to this year’s earnings) of 13.69 – which is lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for AT&T stock in the near term too.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, AT&T has a P/S ratio of about 1.52. This is higher than the Zacks categorized Wireless National industry average, which comes in at 1.45 right now.
However, AT&T has historically always been relatively undervalued compared to the broader market, in terms of the PS metric, over the observed term. Currently its PS compares much favorably with the S&P 500’s level of 3.08.
Notably, T is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, AT&T currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes AT&T a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 2.01, lower than the industry average of 2.23. Clearly, T is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though AT&T might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘D’. This gives T a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen three upward revisions and seven downward revisions in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past two months, while the full year estimate has inched lower by 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
AT&T Inc. Price and Consensus
AT&T Inc. Price and Consensus | AT&T Inc. Quote
This somewhat bearish trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
AT&T is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 27% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Wireless National industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>