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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


November 27th 2009 AT&T
NYSE Symbol: T
Industry: Telecom
Price as of 11/27: $26.99

Id you listen to the Wallstreet experts, then you've heard the market has moved too far too fast this year. Personally, I believe it went down too far too fast, but that's just me. The Wallstreet experts also say that the markets are overvalued, yet the Dow is in the same place it was 10 years ago. Personally, I think a market that has moved sideways for 10 years should have some pretty good value. Having said that, I have vacillated between growth stocks and value stocks over the last several months. This week I'll feature a blue chip Dow component with a great dividend yield. The featured stock of the week is Ma Bell or AT&T. We featured rival Verizon at the end of September. Since then the stock has risen 8.3% including one dividend. AT&T in the mean time has gone no where until recently. In the last several weeks the stock has crept up as value investors or defensive players warm up to the stock. Even with the recent rebound in the stock, AT&T remains a great value with a great dividend yield.
Back in October, AT&T's third quarter net income came in at $3.28 billion or 54 cents a share beating estimates by 4 cents. Profits were virtually flat year over year. Revenue fell 1.6% to $30.86 billion as another decline in AT&T's wireline business was offset by growth in the wireless. AS usual, the strength for AT&T is coming from wireless. Wireless sales rose 8.2% to $13.65 billion thanks to exclusive rights to the Apple iphone. During the quarter, AT&T added a record 2 million wireless subscribers. Wireless is one of the three pillars on which AT&T plans to base future growth. Data and Internet service, also known as broadband, represents another key market, as does pay television. In the third quarter, AT&T signed up a net 240,000 video customers for its U-Verse TV service to reach a base of 1.8 million. AT&T also added 138,000 net broadband customers, including those who bought wireless aircards, for a total of 17.1 million.
One of the concerns for AT&T investors is the probable end of the exclusivity with Apple's iphone next year which has the potential to shake up the customer base at AT&T. The telecom analysts at Gabelli, however, indicated that the loss of exclusivity has already been priced in to AT&T's stock. AT&T's valuation is compelling. The stock trades for 12 times earnings, 1.3 times sales, and 1.6 times book. The book value is $16.87 a share. The cash flow at AT&T remains strong. Free cash flow through the first 9 months of this year have totaled more than all of last year. Thanks to that, the dividend remains high at a yield of 6.2%. The stock goes ex-dividend in the beginning of January. AT&T is not a growth stock, but provides great value and a great dividend. The Gabelli analyst has a price target of $34 a share. Not bad for a great dividend stock.