Should You Buy It?: AT&T Answers the Call

AT&T (T - commentary - Cramer's Take) posted mixed second-quarter results Wednesday morning. The company earned 76 cents a share, which was in-line with the consensus analyst earnings estimate. Revenue grew 4.7% year-over-year to $30.87 billion, falling $280 million short of expectations.

Even so, the stock gained nearly 5% on the session, closing Wednesday at $33.06. While the move appears outsized given the strength of the quarter, the stock did catch a lift from an upgrade at the brokerage Thomas Weisel. The rating went from Underweight to Overweight, removing the only "sell" call on the company.

Despite Wednesday's gains, the stock remains down 21% year-to-date. With that in mind, I'm here to answer readers' questions: Should you buy it? Does AT&T offer value at current levels, or should investors hang up on the stock?

Wireless sales grew 16% from the previous year, as the company added 1.33 million new customers during the quarter. AT&T noted it's seeing higher demand for smartphones that require more expensive data plans. Churn was also benign at 1.6%.

And while Apple's (AAPL - commentary - Cramer's Take) new iPhone (AT&T is the exclusive U.S. service partner) came out early in the third quarter, management said on the conference call that it's selling twice as quickly as the original version.

The $199 price tag for the iPhone means that AT&T is subsidizing the cost of the phone and selling it for a loss, attempting to earn that money back through monthly service charges.

As with top competitor Verizon (VZ - commentary - Cramer's Take), AT&T continues to lose customers for traditional residential land lines, including 993,000 this past quarter. In addition to rising competition from cable and VoIP offerings, declining wireless charges are leading some customers to jettison their land lines entirely.

Also, AT&T added just 46,000 broadband data users during the quarter, compared with estimates between 300,000 and 450,000. On the other hand, the company's U-verse television service added 170,000 customers to 549,000 users, and is on target to reach 1 million customers by the end of the year.

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David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

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