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Valuation: AT&T (T)

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Company Profile (obtained from Google Finance): AT&T Inc. (AT&T) is a holding company. AT&T is a provider of telecommunications services in the United States and worldwide. Services offered include wireless communications, local exchange services and long-distance services. AT&T operates in four segments: Wireless, Wireline, Advertising Solutions and Other. Its Wireless subsidiaries provide both wireless voice and data communications services across the United States, and through roaming agreements, in a substantial number of foreign countries. Wireline subsidiaries provide primarily landline voice and data communication services, AT&T U-verse TV, high-speed broadband and voice services (U-verse) and managed networking to business customers. AT&T’s Other segment includes customer information services (operator services) and corporate and other operations. On May 8, 2012, AT&T sold its Advertising Solutions segment.

Defensive and Enterprising Investor Tests (explanation):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary (explanation):

MG Value $12
MG Opinion Overvalued
Value Based on 3% Growth $27
Value Based on 0% Growth $16
Market Implied Growth Rate 5.21%
Net Current Asset Value (NCAV) -$1.83
PEmg 18.91
Current Ratio 0.69
PB Ratio 2.20

Key Data:

Balance Sheet – 6/30/2013

Current Assets $21,428,000,000
Current Liabilities $31,189,000,000
Total Debt $71,917,000,000
Total Assets $272,093,000,000
Intangible Assets $129,468,000,000
Total Liabilities $186,113,000,000
Outstanding Shares 5,335,230,000

Earnings Per Share – Diluted

2013 (estimate) $2.51
2012 $1.25
2011 $0.66
2010 $3.22
2009 $2.17
2008 $2.16
2007 $1.94
2006 $1.89
2005 $1.42
2004 $1.50
2003 $1.76
2002 $2.2

Earnings Per Share – Modern Graham

2013 (estimate) $1.88
2012 $1.67
2011 $1.93
2010 $2.47
2009 $2.03
2008 $1.90

Conclusion:  AT&T does not pass the requirements for either the Defensive Investor or the Enterprising Investor following ModernGraham’s interpretation of Benjamin Graham’s Intelligent Investor teachings.  In addition, the company appears to be overvalued due to a lack of earnings growth over the last ten years.

What do you think?  Can AT&T turn around and grow its earnings to justify the current price?

Photo Credit:  Andrew Magill

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