AT&T (T) Could Break March Low

According to The Wall Street Journal, AT&T Inc. (T) has hired Goldman Sachs to explore a sale of DirecTV, just five years after buying the satellite-based broadcast provider for a hefty $49 billion. That division's subscriber base has been declining "at the astounding rate" of 18% per year, according to research firm Moffett Nathanson, caught in the system-wide cord-cutting phenomenon. If confirmed, the news will mark the latest failure for the poorly run telecom giant.

Key Takeaways

  • AT&T stock has been stuck in a downtrend for the past four years.
  • The sale of DirecTV would mark another failure for the troubled telecom giant.
  • The stock has failed to issue a buy signal since the March low.
  • Odds are increasing for a breakdown that reaches the 2008 low in the lower $20s.

AT&T is engaged in a reorganization plan that has had little or no impact on the stock price so far in 2020. It has booked a modest string of successes, including the launching of HBOMax and international theatrical release of the highly anticipated "Tenet" film, but high debt levels, the T-Mobile US, Inc. (TMUS)/Sprint hook-up, and the demise of traditional broadcasting don't bode well for the future.

Wall Street consensus has been kind to AT&T in 2020 even though the stock has posted zero returns, before dividends, since 2002. It is currently rated as a "Moderate Buy" based upon eight "Buy," two "Hold," and two "Sell" recommendations. Price targets range from a low of $25 to a Street-high $38, while the stock is now trading just $4 above the low target. There's really nowhere to go but "up" given this sub-par performance.

A reorganization is a significant and disruptive overhaul of a troubled business intended to restore it to profitability. It may include shutting down or selling divisions, replacing management, cutting budgets, and laying off workers.

AT&T Long-Term Chart (1990 – 2020)

Chart showing the share price performance of AT&T Inc. (T)

AT&T posted exceptional returns in the 1990s, splitting three times during an ascent from the single digits into the 1999 all-time high at $59.94. A breakout attempt at the end of 2000 failed, while the subsequent pullback completed a double top breakdown in the second quarter of 2001. The downtrend bottomed out at a nine-year low in the upper teens in March 2003, giving way to a narrow trading range that finally broke to the upside in the second half of 2006.

The uptick stalled just below the .618 Fibonacci selloff retracement level in 2007, yielding a decline that held about two points above 2002 support at the October 2008 low. Bulls took control into the new decade, but their efforts failed to reach the prior high until 2016, highlighting laggard behavior during a strong bull market. The stock reversed at that level immediately, entering a shallow downtrend that is still in force more than four years later.

AT&T Short-Term Outlook

Selling pressure into December 2018 found support at a 2010 breakout level (red line), while a bounce into 2019 posted a lower high within the multi-year downtrend. The stock fell to support for the fourth time in March 2020 and has been hovering near that price level for the past six months. This is a dangerously bearish set-up, given the complete lack of buying interest since the March low, raising the odds for a breakdown that has the potential to reach the 2008 low near $20.

The monthly stochastic oscillator highlights the need for caution at this juncture, failing to reach the oversold level at the March low. The indicator has also failed to cross into a long-term buy cycle since that time, increasing the likelihood of a gravity wave as frustrated shareholders head for the exits, perhaps all at the same time. Taken together with bearish long-term action, there are few good reasons to jump on board, despite the enticing 6.98% forward dividend yield.

A forward dividend yield is an estimation of a year's dividend expressed as a percentage of the current stock price. The year's projected dividend is measured by taking a stock's most recent actual dividend payment and annualizing it. 

The Bottom Line

AT&T stock has struggled throughout 2020 and could break down to multi-year lows in coming months.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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