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
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- 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
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- 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
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- 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: Â 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. Â In addition, the company appears to be overvalued due to a lack of earnings growth over the last ten years.
What do you think? Â Can AT&T turn around and grow its earnings to justify the current price?
Photo Credit: Â Andrew Magill
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