(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of AT&T Inc. (T) may be on the rise. Options traders are betting the stock will increase by as much as 17 percent by the start of next year. That's supported by technical analysis indicating the stock will rise by more than 11 percent in the coming weeks. The bullish outlook is a significant reversal from bearish indicators only a month ago. (See: AT&T Stock Seen Falling 20% Despite Court Victory)
The stock has been on a turbulent ride over the past year, down nearly 20 percent from its high in October of 2017. The telecom company faced questions regarding its purchase of Time Warner in a court battle with the Department of Justice. Even worse, over the past five years, the stock is down by more than 11 percent versus an S&P 500 which is up over 67 percent.
The $37 strike price for expiration on January 18 has seen increasing levels of interest. The open interest has climbed to 30,000 open contracts. It implies the stock could rise to about $37.25, a rise of about 17 percent. The $35 strike price calls have also seen its open interest level rise recently, and suggest that shares rise to about $35.50, an increase of about 11 percent from the stock’s current price.
The technical chart is also improving, with the stock holding technical support firmly at $31.75 after multiple tests since the start of June, a bullish indication. Additionally, the relative strength index has been trending higher in recent weeks suggesting that bullish momentum is coming back into shares. It suggests the stock climbs back to resistance at a long-term downtrend at $35.50.
With its acquisition of Time Warner complete, analysts are looking for AT&T's earnings to rise by over 11 percent in 2018, while revenue is seen jumping by over 7 percent. But the steady growth of 2018 is not expected to last. Growth rates are seen falling next year, with revenue growth forecast to slow to just 5.5 percent in 2019, with no growth forecast for 2020. Earnings are also seen slowing in 2019 to only 2.5 percent, and then to just 1 percent in 2020.
With slowing growth and questions still swirling around the companies purchase of AT&T, the jury is still out if the stock can transition a short-term rally into a multi-year rise.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.