In general, a great deal of my focus is on growth stocks. The fundamental indicators I put a greater emphasis on are part of the reason why growth stocks tend to get my attention more than value-oriented stocks. Earnings and revenue growth are very important to me. Even though the growth segment is my major focus, value stocks do make it on my radar from time to time. AT&T (T) recently got my attention due to a couple of items on the weekly chart.

AT&T dropped sharply in the second half of May after the company announced that it was spinning off Warner Media as part of a joint venture with Discovery. It also announced a huge dividend cut after the spinoff. This caused the stock to drop from the $32.50 area down to the $29 area. The decline brought the stock down to two key levels of potential support. The first level of support was the lower rail of a trend channel that has formed over the last eight months or so. The rail connects the lows from last October and from February.

The second layer of support is the 52-week moving average and it has been tested in each of the last three weeks. If you look back to Q2 2019 we see a similar bullish cross of the trend line and then a pullback and test of the moving average. After the testing of support the stock rallied from the $26-$27 area up to the $35 range.

Value and Profitability Highlight the Fundamentals

Turning our attention to the fundamental analysis, AT&T scores well in two areas: value and profitability. It doesn’t fare well in the growth indicators. Almost any value metric you look at for the stock is below average. The trailing P/E is 8.99 and the forward P/E is only 9.17. The price/sales 1.19 and the price/book is 1.24. This is why the stock gets an overall Value Rating of 8 from Tickeron.

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The company also scores well in the P/E Growth Rating, and the Seasonality Score is flashing a bullish sign at this time. The only area where we see a poor rating is in the Profit vs. Risk Rating.

AT&T’s return on equity is decent at 13.3% and its profit margin is above average at 17.7%. Those factors help the SMR Rating score in the average range because the sales growth is pretty paltry. Over the last three years, the company has seen average annual sales growth of 3% per year. Growth in the first quarter was only 3% as well.

Earnings growth has been even slower than revenue growth. Earnings increased by 2% in the first quarter and they’ve been flat for the last three years. Analysts expect earnings to fall by 1% for 2021 while revenue is expected to increase by 1.5%. Revenue is expected to be flat in 2022 and earnings are expected to decline by 1.3%.

Obviously spinning off Warner Media will have a huge impact on the earnings and revenue numbers going forward. Investors and analysts will have to adjust their expectations once the divestiture is complete.

One of the biggest attractions for AT&T’s stock is the dividend and the company has been considered a dividend aristocrat for years. Unfortunately, it will lose that title with the recently announced dividend cut. The company did reaffirm its $0.52 quarterly dividend payment due on August 2 and that is good for a yield of 7.2%.

Slow Growth Leads to Skepticism from Analysts

With AT&T struggling to grow earnings and revenue, I wasn’t surprised to see that analysts are skeptical toward the stock. I was a little surprised at how skeptical. There are 29 analysts following the stock at this time and only 10 have the stock rated as a “buy”. This puts the buy percentage at 34.5% and that is considerably lower than the average of 65% to 75%. The other 19 ratings break down with 15 “hold” ratings and four “sell” ratings. I have seen stocks with much worse fundamentals with far more optimism from analysts.

The short-interest ratio is at 2.3 currently and that is a little below the average of 3.0. Short interest jumped from 95.8 million shares to 105.8 million shares in the first half of June and that indicates increasing pessimism.

Between the valuation measurements, the better than average profitability measurements, and the dividend yield, I think AT&T could serve as a solid investment for long-term income investors. It could also be a decent investment for value investors that are prepared to exercise patience. It isn’t exactly attractive as a growth stock, but I given the support on the chart, I can see the stock bouncing back over the next six to seven months. A move back up to the $32 to $33 range seems reasonable to me.