The Razor’s Edge

2-Year Price History

Ockham’s Rating

T Stock Evaluation

As noted in the Recommendation Summary, we are content with maintaining our Undervalued rating on T. Although there has been no additional earnings guidance offered by T’s management in the last week, the stock price has increased by 3.38%, which is a negative from a value perspective. However, while the price increase does make the stock less attractive, it is only marginally less attractive and not enough to warrant a downgrade. Find more on this and other fundamental factors in our analysis in the paragraphs that follow.

T Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at T through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 2.88x and 1.92x respectively.

Utilizing this range we can see that T’s current Price to Sales per share ratio of 1.20x is significantly below its average levels historically. In fact, with a current price of $26.01, T is a full 50% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for T.

T Cash Earnings

Looking at T specifically in their Cash Earnings capabilities, Ockham views T as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for T, the current level of Cash Earnings compared to its historical levels helps identify where T is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 9.79 and a historical low Cash Earnings per share ratio of 6.53, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for T? From the Ockham perspective, we are looking specifically at T to see if the market is recognizing the huge disparity between T’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 43% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at T. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

T Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company’s inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from T against the historic high and low levels over an available data range. Because T has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In T’s case, the estimated annual dividend is $1.64 producing a current dividend yield of 6.31%. The highest dividend yield from T in recent history was 7.85% while the lowest dividend yield was 1.71%. If you are looking for some “bang for your buck” then a dividend yield of 32.01% above the historical median should be enticing. T receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.