AT&T Inc. (NYSE: T, Stock Forum) is the leading provider of wireline voice communications services in the U.S., according to Hoovers. The company also operates the nation's second largest wireless network, falling behind only Verizon Communications (VZ) in terms of sales and subscriptions. However, landlines are so 2007, and while AT&T's wireless division has certainly received a boost from the addition of Apple's (AAPL) iPhone, it has yet to prove a serious contender to Verizon's dominance of the wireless market.
From a fundamental perspective, AT&T's wireline business continues to be a liability to the company's bottom line. In the company's April 22 first-quarter earnings report, AT&T reported a profit of 53 cents per share, edging past Wall Street's forecast for 50 cents per share for the quarter. However, the company's wireless division added 1.2 million subscribers to reach a total of 78.2 million, nearly tripling the company's 28.8 million wireline subscribers. Mobile revenue grew to $12.86 billion from $11.83 billion.
Commenting on the report, analyst Craig Moffett of Bernstein Research wrote, "Sticking to what is by now a well-worn script, wireless was strong and wireline weak."
The dwindling returns for T's bread-and-butter wireline business have done little to improve the company's share price. The equity has underperformed the broader market during the past 52 weeks, logging a loss of more than 35% compared to the S&P 500 Index's (SPX) drop of about 2.5% for the same time frame.
Technically speaking, T continues to fight a losing battle against its declining 20-week and 32-week moving averages, with the shares closing only one week above this duo since July 2008. What's more, the security's rebound from its March low has taken T back into contention with these long-term trendlines. Currently, the 32-week is located just overhead near the 26 level, while the 20-week has taken up residence in the 25.50 area.
The combined weight of these moving averages could finally force T out of the trading range between the 25 and 26.50 levels, which the shares have occupied since mid-April. A downside breakout of this sideways trend channel could send T down for a retest of potential support in the 24 region, or even lower if investor sentiment begins a sharp unwinding.
Speaking of investor sentient, options traders are not expecting the stock to trend much lower. T's Schaeffer's put/call open interest ratio (SOIR) of 0.63 arrives in the 23rd percentile of its annual range. This reading indicates that speculative investors have been more bullish only 23% of the time in the prior 52 weeks.
Elsewhere, the International Securities Exchange (ISE) and the Chicago Board Options Exchange's (CBOE) 10-day call/put volume ratio of 1.80 indicates that calls bought to open nearly double puts purchased during the past two weeks. Additionally, this ratio ranks above 64% of those taken during the past year, underscoring a growing preference for calls. This rising bullish sentiment has negative implications from a contrarian perspective.
Wall Street analysts are also heavily bullish toward the landline specialist. In fact, 12 of the 20 brokerage firms following the shares rate them a "buy" or better, according to Zacks, with nary a "sell" rating to be found. Meanwhile, Thomson Reuters reports that the average 12-month price target for T rests at $30.42 per share - an 18.23% premium to the stock's Tuesday close. Any downgrades or price-target cuts could provide additional downward pressure for the security.
One final concern for T shares is the lack of attention from the short-selling community. Currently, a minuscule 0.6% of the stock's float has been sold short. Should the equity breach support in the 25 region, it could attract the attention of these bearish investors, and the ensuing selling pressure could serve to accelerate T's decline.
By Joseph Hargett