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AT&T: A Great Bargain Stock for 2014

January 31, 2014 | About:
Muhammad Bazil

Muhammad Bazil

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The new year is under way and it’s time to start cleaning up your portfolio, getting rid of any dead weight and adding some new stocks with great prospects for the coming year. AT&T (T) ended the previous year strongly and looks to be fairly undervalued at its current price of $33.30. The company seems to have a lot in store to keep its investors happy.

A Strong Fourth Quarter

AT&T ended the year with strong fourth quarter results. While the company had been increasing its debt for the first three quarters of 2013, this past quarter saw a marked decline in the debt to equity ratio. This means the company is not only increasingly able to meet its debt obligations but it can do so without any significant drawback to its profit margins.

The company managed to exceed analyst’s predictions by 6%. Its earnings came out to $0.53 per share instead of the expected $0.50 per share this past quarter. AT&T’s overall earnings per share rose by 20% compared to the previous year’s fourth quarter earnings.

Another sign of the company’s increasing profitability is its fourth quarter return on equity (ROE) of 20.60%. This is up nearly 13% from its third quarter return on equity of 8.45%.

Earnings Trends and Confident Business Practices

This news all comes as part of a longer trend of growing profitability for AT&T. In spite of increasingly tough competition from companies like T-Mobile (TMUS) and Verizon (VZ), AT&T has seen its diluted earnings per share rise consistently for the past three consecutive years.

The company is also expressing confidence in its future potential to continue facing and overcoming the obstacles laid out for it by the competition. Rather than desperately grabbing for money by offering up more equity, AT&T has been dramatically reducing the number of shares outstanding since early 2012.

In fact, in the year 2013 alone, the company returned nearly $23 billion to its loyal stockholders and a large part of this number was in the form of buying back shares in the company. The rest went to paying investors a relatively high dividend yield of 5.49% which currently works out to about $1.84 per share. AT&T currently boasts a payout rate of nearly 127%.

Stock Selling at a Bargain Price

Despite all of these exciting results coming out of AT&T’s financials, the stock still shows a couple of signs being undervalued making now a great time to invest for maximum growth.

At 1.91, the price to book ratio is nearing the company’s five year low. This figure compares the current stock price with the actual profitability of the company. When the figure starts nearing one (and especially when it falls below), this indicates that company is likely growing significantly faster than the market is giving it credit for.

AT&T’s price/earnings to growth ratio (PEG ratio) has hit the company’s historical low of 0.053. This figure provides us with yet another sign that the price of the current stock is currently below the company’s true potential value. The further below one that a company’s price/earnings to growth ratio is, the more undervalued the stock is at that point in time. With such an astonishingly low PEG ratio, then, AT&T appears to be drastically undervalued at its current price. This makes it a fantastic time for investors to buy.

Conclusions

AT&T is a great stock with a strong future and attractive dividends, offering investors a lot to look forward to in the coming years. It is also likely being substantially undervalued by the market right now, making it an ideal time to buy in order to maximize your growth potential. Investing in AT&T now could give your portfolio the invigorating boost it has been looking for.

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.

Rating: 2.7/5 (7 votes)

Comments

pravchaw
Pravchaw premium member - 2 months ago

Looks like you cranked the article out without much thought.  The PEG ratio you quote is incorrect.   With PE of 23.4 and earning growth literally flat how are you getting a PEG or 0.05?  At least use some common sense before posting articles like this.  

"AT&T’s price/earnings to growth ratio (PEG ratio) has hit the company’s historical low of0.053. This figure provides us with yet another sign that the price of the current stock is currently below the company’s true potential value. The further below one that a company’s price/earnings to growth ratio is, the more undervalued the stock is at that point in time. With such an astonishingly low PEG ratio, then, AT&T appears to be drastically undervalued at its current price. This makes it a fantastic time for investors to buy."

Is this someting to boast about?

"AT&T currently boasts a payout rate of nearly 127%."  

How long do you think this can continue.

 

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