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AT&T: The Curse of Being Too Big

June 27, 2012 | About:
Muhammad Bazil

Muhammad Bazil

3 followers
AT&T (T) is a performer. I mean, if you just round up the numbers and blank out any other aspects, I am sure that you would fork out incredible amounts for this stock.

Here is a sneak preview of some of the crucial numbers

P/E 50.36
Dividend yield 5%
Net income 4.12B


Although unorthodox, focusing on the key figures sometimes gives a somewhat guided direction on the health of stock. In this particular case, however, it doesn’t. If you key in other important aspects, you will realize that AT&T suffers the curse of being too big.

Disgruntled investors

Being too big has its effects. Have you ever imagined how someone working for a blue-chip corporate yet earning the wages of a small-scale farmer feels? Probably not. However, AT&T investors are slowly but certainly being pushed to such an incline.

Looking at the 5% yield cited above, you would be misled to think that the yield is generous. Newsflash: You are wrong. Five percent is without question a very small amount for a telecommunication behemoth that is more than half, if not all, of the time referred to as the biggest telecommunication heavyweight. Although AT&T may merit its failure to give higher dividends with the ongoing fiber optic initiative that will burn over $4.4 billion, I am still convinced that it can do better with regard to placing a smile on shareholders' faces.

Actually, it comes in at a shaming tenth position out of fourteen telecommunication companies that extend dividends. At the fall of last year it was also ranked worst among American carriers and pretty much deserved it. Didn’t it receive a wake-up call the previous year when consumers crowned it, making 2011 a two-years-in-a-row scenario?

I am not against AT&T. Interestingly, I even remotely advocate for it; it still has shreds of hopes that if coupled with its incredibly big size and lumpy finances could work out in its favor.

Verizon the aggressive player

Verizon’s aggressiveness is boundless. This may prove to be really costly to AT&T. Although AT&T has the financial edge at the moment, Verizon is not far behind in such regard and could minimize the gap in future. It is however paces ahead with regard to embracing breakthroughs in the technological space.

It boasts of having the nation’s largest 4G Long Term Evolution, simply known as 4G LTE, and has in recent days expanded its customer base for the 4G LTE. It is expanding this peerless service to new markets. Wireless is spreading like bush fire and Verizon knows it. Before AT&T gets the time to make reasonable amends and forge forward, Verizon may have already placed its shadow over the entire market. This is not farfetched. In fact, Verizon’s 4G LTE service already casts its nest over two-thirds of the American population in all the 258 markets spanning American soil. Just recently, news came in that AT&T’s worst nightmare, the one and only Verizon (VZ), expanded 4G LTE to SanAngelo, Texas, alongside other states.

AT&T really has to look for a game changer if it in any case wants to stop Verizon from rattling its dominance. Verizon simply doesn’t know when to fail. Even the negative outlook from union members after the 1,700 jobs issue did not in any way shake the big wig.

The only reason I have not completely thrown down the towel on AT&T is that like any other age-old stock, it has experience and a track record. In as much as the situation may seem overwhelming, it may have a strategy to meander its way out of the maze. Age-old stocks are typical of doing this.

Similarly, it has the financial muscle. It can afford a few stumbles here and there, consequently widening the room for error. This acts to its advantage because at the moment it needs a reasonable room for error as it tries to find a way of tackling Verizon.

I call it the curse of being too big. Expectations are always placed at the ceiling and a few slips are never tolerated. AT&T needs to get its act together if in any case it wants to see a bulge in demand for its stock. For now, AT&T is a sell.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

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