Is AT&T Stock Now a Sale? This is what the earnings, charts show

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AT&T (T) is one of the most recognizable wireless phone providers in the US. The telecom and media conglomerate can be seen as a safe haven when stock markets become volatile and provide a solid defensive game. AT&T also maintains a high annualized dividend yield of 6.6% in a relatively low interest rate environment. Should Investors Consider Buying AT&T Shares?




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Currently, the stock market is in a correction, meaning it’s not an optimal time to buy stocks, but it’s still very important to identify top candidates for your watchlist. Investors should look for leading stocks in leading industry groups that outperform the market for when the market returns to a confirmed uptrend.

AT&T technical analysis

AT&T stocks also had a rough second half of 2021. Stocks tried to break from a flat base earlier this year with a buy point of 31.99. But the breakout failed in late May as the heavy volume stock fell below the 50-day mark. AT&T shares also fell further below their 200-day moving average.

Second quarter earnings were released due to a very negative response from investors, which drove down large volume. The company reported on July 21 that shares fell nearly 8% on the day. The recent earnings report also placed stocks below their 50- and 200-day lines, which is a major negative. Ideally, investors want to look for stocks that are above the support on their moving averages.

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The stock will need to do some repair work after this sell-off and ideally rebuild a new base and buy point before it becomes usable. This would give the stock a point to break out. The stock’s relative strength has also fallen sharply during its recent decline on July 21.

AT&T stock maintains a less-than-ideal Relative Strength Rating of 38, which is below the minimum of 80 for portfolio candidates. The RS line measures a stock’s performance against the S&P 500. Ideally, an RS line should be at or near a new high when a stock breaks out.

AT&T Stock: WarnerMedia, Discovery Merger

In May 2021, AT&T agreed to merge its WarnerMedia business with Discovery (DISC). The wireless service provider planned to merge its WarnerMedia business with Discovery in a deal that could close sometime in the second quarter.

The WarnerMedia division and Discovery merge to form Warner Bros. Discovery, which will trade as WBD shares. Warner Bros. Discovery is expected to begin trading early in the second quarter. AT&T shareholders will own 71% of the new company and Discovery shareholders will own 29%.

The new company will include streaming video services HBO Max, Discovery+ and CNN+ and will compete with Walt Disney (DIS), Netflix (NFLX) and others. But it will also have a large number of old pay TV channels and production studios. Included are brands like HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, TNT, TBS, Eurosport, Magnolia, TLC and Animal Planet.

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AT&T earnings

AT&T was expected to report second-quarter revenue of $29.45 billion, but exceed opinions, with revenue of $29.64 billion. Sales were still down 17% year-on-year. Meanwhile, the company also exceeded expectations with earnings per share of 65 cents per share. But this was also an 11% year-over-year decline, which isn’t ideal.

In addition, AT&T cut its annual dividend by 46% to $1.11 per share because of the WarnerMedia spin-off. Still, AT&T offers a 6% dividend yield, which is quite strong in today’s market.

“Management has not committed to any dividend-specific actions going forward, specifically deferring to the board of directors on future dividend growth, which we believe is the most critical aspect,” Raymond James analyst Frank Louthan said in a report. “We continue to hope for a symbolic dividend increase, where buybacks are also a possibility. We expect more clarity about this before the end of the year.”

The main reason AT&T’s second-quarter earnings drove its stock down was that the company lowered its full-year free cash flow guidance. AT&T lowered its full-year free cash flow guidance to a margin of $14 billion, from a margin of $16 billion.

Free cash flow generated from continuing operations in the second quarter was $1.4 billion amid higher capital expenditures, the company said. That missed consensus estimates of $4.62 billion worth of FCF.

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Finally, AT&T said it added 813,000 postpaid wireless phone customers, compared with estimates for a gain of 562,000. AT&T’s wireless service revenues grew 5.2% to $19.9 billion, compared to estimates of $19.7 billion.

Is AT&T Stock a sale?

AT&T should not be bought at this point as the stock has passed just below the key moving averages and some repair work is needed before a new buy point is available. Investors also want to prioritize stocks that have seen at least 25% growth in earnings and revenue in recent quarters. T-shares are currently well below that level.

Despite its 6.6% dividend yield, AT&T stocks are not something to add to your portfolio right now. Investors will have to wait for the stock fundamentals to improve. Investors can view IBD stock lists and other IBD content to find the best stocks to buy or watch.

Follow TBEN on Twitter at @IBD_RFox for more commentary on the best stocks to buy and watch.

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