The market’s optimism for AT&T (NYSE:T) faded quickly by mid-month when shares traded close to $32.00. Stuck with the consistently high-paying dividend yield of over 7%, the telecom giant is stuck in a trading range. The firm has cash flow growth strength from its core business while its studio segment and DirecTV auction are worrying investors.
Initial estimates for the sale of DirecTV suggest it is worth no more than $15 billion, including debt. To entice a sale, AT&T would still need to keep a controlling interest as the buyer pays around $3.75 billion for a 49% interest. This arrangement is messy. Having another partner will only complicate running the unit. Besides, AT&T bought the unit for $49 billion ($67.1 billion after including debt) and would need to take a goodwill writedown. The $3.75 billion in cash proceeds from the sale will barely lower the telecom giant’s debt levels.
AT&T stock traded at a day high of close to $32 in the month, spending most of the time in the $28.50 - $30.00 range. The telecom firm also under-performing along with Verizon Communications (NYSE:VZ). VZ stock peaked at $61.95 and closed below $59 last week.
AT&T stock suits only income investors. Those seeking capital gains should invest elsewhere.
