This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

AT&T, With DirecTV, Has the Firepower for a Major Stock Move

NEW YORK (TheStreet) – No one is going to deny that AT&T (T - Get Report) is a mature company. Growth has slowed over the past couple of years, but the Dow component is one the market's top dividend payers with a yield of 5.20%.

The company's management isn't satisfied with the status quo. It wants to show Wall Street that maturity is not an enemy of growth.

AT&T's $48.5 billion deal for satellite TV provider DirecTV (DTV) was its first real sign of how serious management has become. Observers are taking a wait-and-see attitude. The company reports second-quarter earnings Wednesday.

Chipotle Just Said 3 Amazing Things on its Earnings Call

Netflix Just Exceeded A Big Milestone: 50 Million Members Worldwide

Bill Ackman Says He’s Spent $50 Million on Herbalife Battle

The stock closed Monday at $35.96. Shares are up 2.3% on the year to date. But over the trailing 12 months, AT&T stock has gained only a fraction, trailing the telecom sector's 12% gain. During that same span, both smaller rivals Sprint (S) and T-Mobile (TMUS) have gained 27% and 29%, respectively.

I would be a buyer here ahead of Wednesday's report. Investors are discounting AT&T in several critical areas -- both on its on merits and on the potential accretive value from DirecTV.

First, on its own, the stock is trading at just 10 times trailing earnings, even though shares are a mere 2.5% away from their 52-week high. When we factor the valuation on fiscal 2015 estimates of $2.75, AT&T shares still trades at a P/E of 13, which is three points below the industry average and one point below Verizon (VZ).

From my vantage point, AT&T is trading on the assumption that it will yield little to no growth. But there are more reasons to own this stock than for its dividend.

With DirecTV coming onboard, I think AT&T can reach $42 sometime in 2015. I say this knowing full-well that the deal still needs to pass regulatory approval. I don't think the market fully appreciates how much scale AT&T can drive across all of its businesses through DirecTV.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
SYM TRADE IT LAST %CHG
T $33.38 -1.01%
AAPL $125.01 -0.63%
FB $78.10 0.70%
GOOG $524.22 -1.24%
TSLA $230.43 -1.08%

Markets

DOW 17,841.98 -86.22 -0.48%
S&P 500 2,080.15 -9.31 -0.45%
NASDAQ 4,919.6440 -19.6830 -0.40%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs