AT&T (T) - The Telecoms are back at it again!
Happy New Year! As we start 2007 with cautious optimism, we feel this year could be as exciting as 2006 in respect to the stock market. However, given the recent gains, we also feel it would be prudent to go over your portfolio and sell some your positions if the gains have reached your original target. Taking money off the table and reinvesting it in other stocks will help us reduce the overall risk. With that said, the first stock analysis of 2007 is AT&T (T).
The good old telecoms are back at it again. The recent marriage of AT&T and BellSouth means we can expect more mega mergers in 2007. We predict by the time this is all over; there will be only a handful of major players, AT&T and Vodafone (owns Verizon) being the two largest. Our prediction is Sprint will likely be acquired by Vodafone sometime in 2007 as it will eventually unable to effective compete against Verizon and AT&T. Our view is AT&T is in the best position to emerge as the leader of the pack. It is unlikely AT&T will acquire Sprint given the BellSouth purchase.
According to the Wall Street Journal, AT&T has become the world's largest telecom company by closing the $86 billion acquisition of BellSouth Corp. The company will aggressively push new wireless services to corporate customers and consumers, and make advertising a key revenue stream. AT&T now has 58.7 million wireless customers, 67.5 million local-phone customers as well as corporate accounts with all of the Fortune 1000 companies. In addition to wireless and advertising, its other key growth engines in coming years will be its nascent Internet-based television service as well as overseas operations, particular among corporate customers. Since Cingular uses a cellphone technology called GSM that is popular in Europe and Asia, it is well-positioned to strike partnerships with foreign carriers on roaming agreements (Sharma, Latour, 2007). In fact, we are already seeing a strong push for wireless advertising as AT&T recently renewed its partnership with the likes of Yahoo! (YHOO) to carry ads on mobile phones.
Trading near its 52 week high of $35.75, we believed AT&T still has room to grow. While AT&T is trading slightly higher than it’s next competitor, Verzion (VZ), in terms of their P/E ratio (19.29 versus 15.79), we feel the higher valuation is justified given the current momentum of AT&T. We also believed the acquisition of BellSouth will help maintain AT&T’s position as the de facto telecommunication company in the U.S. and the World. In our view, this is the closest to a monopoly as we can get; and we love monopoly when it comes to investing. Recommendation is to watch AT&T (T) and consider adding some positions whenever there is weakness. Our target entry price for AT&T is $33/share. If all goes well with the BellSouth integration, we believed AT&T should be at $45 by December of 2007.
Update: 2-23-07 - Since this article, AT&T share have been all over the map. The stock dropped close to our target price of $33 per share, but never quite got there. However, we remain patient and will wait for a bad day.
Reference:
AMOL SHARMA and ALMAR LATOUR, Wall Street Journal Online. Jan 2nd, 2007. Retrieve on Jan. 2nd 2007 from
http://online.wsj.com/article/SB116769013548264242.html?mod=home_whats_news_us
Comments
Vodafone does not own Verizon.They have 45% ownership in Verizon wireless.
Posted by: Brian Gibbons | March 25, 2007 03:55 AM