AT&T INC. $29 (New York symbol T; Income Portfolio, Utilities sector; Shares outstanding: 5.9 billion; Market cap: $171.1 billion; WSSF Rating: Average) provides traditional local and long-distance telecommunication services to over 59 million customers in 22 states. It also has 73 million wireless subscribers nationwide, and 14.7 million high-speed Internet customers.
Unlike Verizon, AT&T gets just half of its earnings from its wireless business. However, demand for its wireless services is growing strongly. That’s partly due to AT&T’s exclusive deal to sell Apple’s iPhone.
AT&T offers the iPhone at a discount to entice customers to sign a long-term contract. As part of a new deal with Apple, AT&T will now pay more to subsidize the initial cost of the latest version of the device. However, the new iPhone can access the Internet and receive email much more quickly than the older version. Rising revenues from Internet use should help AT&T offset the higher subsidies.
Thanks to 1.3 million new wireless users, AT&T’s revenue rose 4.7% in the second quarter of 2008, to $30.9 billion from $29.5 billion a year earlier. Earnings before one-time items grew 4.7%, to $4.5 billion from $4.3 billion. Per-share earnings rose 8.6%, to $0.76 from $0.70, on 4% fewer shares outstanding.
AT&T also aims to fuel growth with its U-verse service, which uses high-speed Internet technology to deliver a package of services, including phone, Internet access and TV signals. The company had 549,000 U-verse subscribers at June 30, 2008, and should reach its goal of 1 million subscribers by the end of 2008.
The stock now trades at 9.8 times its estimated 2008 earnings of $2.96 a share, and 5.1 times its cash flow of $5.70 a share. The $1.60 dividend yields 5.5%.
AT&T is a buy.
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