Summary
- AT&T continues to be absurdly undervalued.
- The yield is also quite high by historical standards.
- There are many reasons why AT&T is undervalued, and why investors should buy the stock.
A battleground stock
AT&T (T) certainly has been the source of much debate among investors in the past year or so as the company’s grand growth plans haven’t been received particularly well. Of course, AT&T’s legacy businesses, including TV and phone service, are slow-growers at this point, or not at all in some cases, so some angst about future earnings expansion is understandable. And when one throws in AT&T’s absolutely gargantuan debt load, it can certainly be an unnerving time to be a shareholder. However, I believe AT&T’s plan to service its debt and achieve a moderate level of earnings growth is more than enough at today’s share price to justify a long position given where the two most important metrics AT&T is measured upon - its PE ratio and its dividend yield - are today.
An absurd valuation
Before we get to why I think AT&T will work its way out of the mess it is currently in, let’s take a look at just how cheap the stock is today. Using data from Value Line (behind a paywall), I’ve charted AT&T’s price-to-earnings ratio since 2002, along with an average that I computed, in addition to today’s PE ratio, which is based upon data from Seeking Alpha. The results are striking.
