(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

AT&T Inc. (T) has plunged by more than 22% from its high two years ago. But the telecom giant's stock has staged a steady rebound in recent months and now is poised to rise 8% higher, based on technical analysis. That gain could push AT&T's shares 17% higher than where they were in the last week of July, and may represent the beginning of a much longer-term advance for the stock.

Options traders are bullish too, betting the shares will rise by about 6% by the middle of December. The sentiment is a result of earnings and revenue estimates which have increased following the acquisition of Time Warner. (See also: AT&T an ‘Extreme’ Bargain, May Rise 12%.)

Bullish Technical Patterns

 

AT&T's technical chart suggests that a significant reversal may be in the works. A technical trend -  known as a reverse head and shoulders pattern - has emerged. It's a bullish pattern, suggesting the stock will rise. Additionally, the stock has been in a downward sloping trading channel since the summer of 2016. Conservatively, the stock appears ready to rise to the upper side of the channel to about $36.70, an increase of almost 8%. But should the stock rise above the top of the channel, it could trigger a much longer-term breakout, fueling another 7% rise on the stock to $39.20.

Additionally, the relative strength index (RSI) has been rising since May, well before the stock's recent rise, a bullish divergence. It indicates that momentum has turned positive.

Bullish Bets

Options traders are betting the stock rises, as the calls at the $35 strike price expiring in December have seen an increasing amount of activity.

Estimates Rise

T EPS Estimates for Current Fiscal Year Chart

T EPS Estimates for Current Fiscal Year data by YCharts

As a result of the deal to buy Time Warner, analysts have increased their earnings estimates for the stock by more than 18% since January. Now, analysts see earnings growing by more than 15% this year. Meanwhile, revenue will rise an estimated 8% this year. (See also: How AT&T Makes Money.)

Cheapest Valuation In Years

Fundamental Chart Chart

Fundamental Chart data by YCharts

Because of the improving earnings outlook, the stock is trading at its cheapest one-year forward PE ratio since 2015, at 9 times earnings. The  historical range is 11 to 14.5.

To be sure, these developments paint a promising picture for AT&T investors eager for longterm stock growth. But AT&T's shares essentially missed the bull market of the last decade, drastically underperforming. And many investors will remain skeptical until they see more evidence that AT&T's new and old businesses are firing on all cylinders.

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 holdingsInformation 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.

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