Summary
- AT&T hit new 52-week highs near $36.
- The stock continues to trade favorably in comparison to Verizon.
- The company continues to make long-term missteps likely to doom the stock from any significant rally above $40.
- A max upside potential is $43.50 where the dividend yield dips to 4.7% and the forward P/E multiple hits 12x.
With AT&T (T) finally climbing to new yearly highs in the last month, investors still holding the stock should look for a blowoff rally to $40+. The stock remains cheap compared to a peer, and the major drawbacks aren't likely to come to the surface until later in the year. The investment thesis remains bullish on this quick run up by the stock despite long-term managerial issues.
Image Source: HBO website
Converging Metrics
Despite constantly complaining about the executive management team of AT&T, my investment portfolio has held shares since the closure of the Time Warner deal. The main reason was the stock trading far below the valuation multiples of Verizon Communications (VZ) due primarily to the stock never getting a boost from the 2018 tax cuts. At the time, the focus on the Time Warner merger caused the market to miss the big boost to EPS and cash flow numbers. For this reason, AT&T trades at a massive discount to the 12x P/E ratio of Verizon.
Data by YChartsAnother prime signal that a disconnect existed is the dividend yield. Verizon has seen the yield dip to nearly 4.0%, while AT&T was up above 6.0% and is still at rather large 5.7% yield.
