AT&T Inc. (T) reports Q3 2021 earnings on Thursday morning, with analysts looking for a profit of $0.80 per-share on $42.24 billion in revenue. If met, earnings-per-share (EPS) will mark a slight improvement compared to the same quarter in 2020. The stock booked a small gain after beating Q2 top and bottom line estimates in July but quickly turned tail, dropping more than 10% into last week’s 11-year low in the mid-20s.
Income-Minded Shareholders Hit the Exits
The telecomm giant rallied to a 52-week high in May after announcing a merger with Discovery Inc. (DISCA). The news triggered a flurry of upgrades but the mood soured after analysts realized the dividend would need to be slashed to complete the transaction. Income-minded shareholders headed for the exits, triggering a steep slide that relinquished more than 25% of the stock’s value into the October low. The merger is expected to close in the middle of 2022.
KeyBanc analyst Brandon Nispel just upgraded the stock to ‘Sector Weight’, citing reasons that make it tough to justify further downside. As he notes, “AT&T currently trades at <$20 post-Warner Media spin, or <6x our 2023 pro-forma adj. EBITDA, and it appears more difficult to justify further downside from current levels given: 1) simplification of the business; 2) reduced leverage; and 3) peers that trade at premiums. While we do not recommend owning AT&T and see modest downside to our $25 FV, further downside might support a more positive risk/reward.”
Wall Street and Technical Outlook
Wall Street consensus has grown highly bearish since May, dropping to a ‘Hold’ rating based upon 5 ‘Buy’, 2 ‘Overweight’, 18 ‘Hold’, and 1 ‘Underweight’ recommendation. In addition, three analysts are recommending that shareholders close positions. Price targets currently range from a low of $23 to a Street-high $37 while the stock is set to open Wednesday’s session less than $3 above the low target. This placement matches the KeyBanc view of limited downside.
AT&T tested the 2007 high in the 40s in 2016 and reversed, entering a decline that found support at 26.18 in 2018. It undercut that level by 78 cents during 2020’s pandemic decline and posted the second lower high since 2016 in May 2021. The selloff into October has undercut the 2018 and 2020 lows, dropping the stock to the lowest low since July 2010. A rally above 27 will set off a buy signal in this scenario but the 2008 bear market low near 21 may still come into play.
For a look at today’s economic events, check out our economic calendar.
Disclosure: the author held no positions in aforementioned securities at the time of publication.