Back to top

Image: Bigstock

Is AT&T (T) a Great Stock for Value Investors?

Read MoreHide Full Article

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 9.11, as you can see in the chart below:


 
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 18.24. If we focus on the long-term PE trend, AT&T’s current PE level puts it below its midpoint of 13.37 over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.


 
Further, the stock’s PE also compares favorably with the Zacks Computer & Technology sector’s trailing twelve months PE ratio, which stands at 20.55. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.


 
We should also point out that AT&T has a forward PE ratio (price relative to this year’s earnings) of just 8.91, 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.

P/S 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 1.38. This is a bit lower than the S&P 500 average, which comes in at 3.32x right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.


 
If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, AT&T currently has a Value 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, the PEG ratio for AT&T is just 1.35, a level that is far lower than the industry average of 1.73. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. 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 Score of B and a Momentum Score of B. This gives T a Zacks VGM score — or its overarching fundamental grade — of A. (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 two estimates go higher in the past sixty days compared to nine lower, while the full year estimate has seen four up and five down in the same time period.

This has had a mixed impact on the consensus estimate though as the current quarter consensus estimate has dropped by 1.2% in the past two months, while the full year estimate has inched higher by 0.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

AT&T Inc. Price and Consensus

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) 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 (among Bottom 40% 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 two 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 estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>


Unique Zacks Analysis of Your Chosen Ticker


Pick one free report - opportunity may be withdrawn at any time


AT&T Inc. (T) - $25 value - yours FREE >>

Published in