AT&T Inc. (T) stock fell 26% in 2020, closing the year within 22 cents of the last price traded in December 2018. The performance compares unfavorably with Verizon Communications Inc.'s (VZ) minus 4% return and industry leader T-Mobile US, Inc.'s (TMUS) impressive 72% return. Of course, the perennial laggard AT&T is a special case, saddled with years of debt accumulated by poorly executed purchases that include 2015's disastrous DirecTV acquisition.
The company also overpaid for Time Warner in 2016, but that bet could eventually pay off, with the new HBOMax streaming service growing at a healthy pace. In addition, Warner has announced that all 2021 movies will be released on the service at the same time, providing an excellent incentive for new subscribers to jump on board. Taken together with last year's wickedly poor returns, AT&T stock could be a perfect candidate for January Effect buying pressure.
AT&T is trying to unload DirecTV, but a recent report suggests the company is unhappy with offers for the struggling satellite service. Bid deadlines have been pushed from December into January in hopes of a better deal, but the process could shut down if no one steps up and offers more than $15 billion. Time is running out, with New Street Research predicting that DirecTV's EBITDA will drop from $4.5 billion in 2020 to just $3 billion in 2022.
Wall Street coverage has grown less skeptical in recent months, lifting to a consensus "Moderate Buy" rating based upon seven "Buy" and six "Hold" recommendations. However, three analysts still recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $25 to a Street-high $38, while the stock is set to open the first session of 2021 about $2 below the median $31 target.
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company's overall financial performance and is used as an alternative to net income in some circumstances. EBITDA, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment.
AT&T Long-Term Chart (1999 – 2020)
A powerful advance posted an all-time high at $59.94 in January 1999 and eased into a broad topping pattern that broke to the downside in 2001. The stock plunged to a nine-year low in the upper teens in 2003, marking the lowest low in the past 18 years, ahead of a mid-decade rally that stalled at the midpoint of the massive range in 2007. The subsequent decline found support within two points of the prior high following the 2008 economic collapse.
A slow-motion uptick completed a 100% retracement into the 2007 high in 2016, yielding a quick rally, followed by a failed breakout that reinforced resistance in the mid-$40s. The subsequent downtrend continued into 2010 support in the upper $20s, where buyers returned in 2019. Their efforts came up short, with price stalling well below the prior high in November and rolling over in a pandemic decline that tested support once again in March.
The stock dropped into that trading floor a third time in October, posting a slightly higher low ahead of generally positive price action into year end. The monthly stochastic oscillator crossed into the first buy cycle since 2018 at the same time, raising the odds that January Effect buying pressure will test and possibly mount the December swing high at $31.27. That event would also signal support at the 200-day exponential moving average (EMA) for the first time since February 2020.
The January Effect is a perceived seasonal increase in stock prices during the month of January. Analysts generally attribute this rally to an increase in buying, which follows the drop in price that typically happens in December when investors, engaging in tax-loss harvesting to offset realized capital gains, prompt a selloff.
The Bottom Line
AT&T stock could attract January buying interest and rally into the low to mid-$30s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.