Can AT&T Break Out Of Its Range?

With shares of AT&T (NYSE:T) trading around $34, is T an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

AT&T is a provider of telecommunications services in the United States and worldwide. Services offered include wireless communications, local exchange services, and long-distance services. AT&T operates in four segments: Wireless, Wireline, Advertising Solutions, and Other. The communications products offered through AT&T's segments reach audiences using just about every widely adopted medium: Internet, voice, television, and mobile. As consumers continue to adopt this technology, providers like AT&T stand to see rising profits.

AT&T CEO Randall Stephenson complained about the high cost of smartphone subsidies at an investor conference in New York, saying that the days of wireless carriers subsidizing the price of expensive smartphones will soon be over as smartphone penetration inches closer to 100 percent. "When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," Stephen said, according to a report from CNET. "But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that."

T = Technicals on the Stock Chart are Mixed

AT&T stock has been range-bound over the past couple of years. The stock s currently trading sideways and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, AT&T is trading beow its rising key averages, which signal neutral to bearish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of AT&T options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
AT&T options	20.35%	96%	94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
December Options	Steep	Average
January Options	Steep	Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on AT&T’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for AT&T look like and more importantly, how did the markets like these numbers?

	2013 Q3	2013 Q2	2013 Q1	2012 Q4
Earnings Growth (Y-O-Y)	N/A	7.58%	11.67%	-39.59%
Revenue Growth (Y-O-Y)	N/A	1.58%	-1.46%	0.23%
Earnings Reaction	-1.84%	-1.14%	-5.02%	0.80%

AT&T has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with AT&T’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has AT&T stock done relative to its peers, Verizon (NYSE:VZ), Sprint (NYSE:S), T-Mobile US (NASDAQ:TMUS), and sector?

	AT&T	Verizon	Sprint	T-Mobile US	Sector
Year-to-Date Return	-8.06%	-7.49%	44.32%	48.47%	20.31%

AT&T has been a poor relative performer, year-to-date.

Conclusion

AT&T is a communications and entertainment company that operates around the world. The company’s CEO Randall Stephenson complained about the high cost of smartphone subsidies at an investor conference in New York, saying that the days of wireless carriers subsidizing the price of expensive smartphones will soon be over as smartphone penetration inches closer to 100 percent. The stock has been consolidating in recent years and is now trading sideways. Over the last four quarters, earnings and revenues have been increasing, which has left investors pleased with the company. Relative to its peers and sector, AT&T has been a weak year-to-date performer. WAIT AND SEE what AT&T does next.