At&T Risk Analysis
“Analysis of AT&T’s Stock”
FIN560 - Securities Analysis
1. The background of the company
2. AT&T’s Life Cycle Analysis
3. Analysis of Return on Equity
4. The company's projected future growth rate of earnings
5. Analysis of its required rate of return using the CAPM measurement
6. The company’s intrinsic value using the discount valuation techniques
1. AT&T Background
AT&T Inc. is an American multinational corporation that provides telecommunications services to consumers, businesses, and other providers worldwide. Founded in 1983 as SBC Communications Inc. and changed its name to AT&T Inc. in November 2005, is considered the leading company in the telecommunication industry by Fortune 500 ranked as the number 11th; Headquartered in Dallas, Texas AT&T Inc. has 266,590 employees.
AT&T Inc. common stock is listed on the New York Stock Exchange under the symbol of “T” (NYSE: T) making the company one of the 30 stocks that make up the Dow Jones Industrial Average. It is also a Fortune 500 company ranked the largest communications holding company in the world by revenue of $127.4 billions and by net income was $7.539 billion in 2012. Its direct competitor is Verizon Communications with $110,875 millions in revenue and $2,404 millions in profits, 20% bellow of AT&T. According to its 2012 Annual Report, the company has invested $19.7 billion in project for wireless and mobile capabilities with a 10.6% growth year over year; also $23 billion paid to stockholders and $39.2 billion cash generated from operating activities. AT&T is one of the most honored companies in the world; it has been recognized by industry experts, analysts and media for its innovative products, and services; also for its commitment to the people and to the communities. 2. AT&T’s Life Cycle Analysis
Taking in consideration AT&T’s quote cycle life, the company has have a substantial growth which is reflected in the uninterrupted dividends on its common stock since 1984 and increased payments to common shareholders every for 28 consecutive years.
AT&T 10-year quote chart cycle
Source: AT&T archives.
The graph describe the trending line of AT&T quotes over the past 10 years, and the company’s phase lifecycle stock, AT&T dividend growth stock has delivered an annualized total return of 2.50% to its shareholders.
From the trending line back in 2003 to 2006 the company had a basing phase with no growth, this was the result of the decision of the company to deliver zero growth in EPS since 2003.
In 2008 the trending line started a growing phase, reaching the top with a closing price of $26.77 on October of that year; after that the company started to present a slight roller coaster phase and again a basing phase started until 2011 that the price of the stock starting to have again a growing phase; as of today AT&T is doing moderately well with its current price as of April 4th,2013,$37.91 but needs to regain its competitive position while also managing slowing growth and commoditization of its lucrative voice revenues.
3. Analysis of Return on Equity
The data used for this analysis is taken from AT&T’s financial statements, also the “T” a will be compare the industry’s current ROE .
The formula to calculate the Return on Equity (ROE) is the following:
ROE= Net Profit/Equity
To calculate the AT&T’s ROE for the 2012 period, the following data was taken from the financial statements (USD $ in millions):
* 2012 AT&T’s Net Profit: 7,264
* Stockholders’ Equity: 92,695
Applying the formula:
ROE= Net Profit/Equity x 100
ROE= 7,264/92,695 x 100=7.84%
The 7.84% compare to the industry 13.81% is very low; this percentage means that the company is not as efficient in producing revenue. A five years ROE analysis compare with the industry will show...
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