Elliott Management Takes Stake in AT&T

Activist hedge fund Elliott Management, which was founded in 1977 by Paul Singer, which currently manages over $35 billion, announced in a press release this weekend that it has purchased $3.2 billion worth of AT&T’s (Ticker Symbol: T) stock.  In a letter Paul Singer wrote to the board of directors, he announced that the company is trading undervalued relative to what it is worth and could eventually be worth up to $60.00 a share by the end of 2021. The news sent the stock gapping up over 4% on the open on Monday.  

In the letter, Singer points out where he feels the company has been doing poorly in the past and where he sees value in the future.  He feels like AT&T has “world-class” assets that are trading at historic discounts and that by restructuring management, instituting clear capital priorities, and improving operational performance, the company can “unlock significant value.”  He feels that if these substantial and achievable steps are taken, it can create a significant gain for the company’s shareholders.  

AT&T’s stock price had a rough year in 2018.  After failing to make new highs in the first quarter, the stock proceeded to form a Double Top reversal pattern. Double Tops occur when the price of a stock reaches a high price, has a small sell-off, then retests that high failing to break above it.  The pattern is confirmed once it breaks below the low between the two prior highs. 

Unfortunately, for AT&T’s shareholders, the stock continued to sell off lower trading below its 100 and 200-day moving averages. The downtrend persisted through the next three quarters led by weak earnings and revenue releases. 

In the fourth quarter of 2018, AT&T found a temporary bottom while forming a bullish divergence pattern, (as indicated on the chart by the green squares and yellow lines) where the stock makes a lower low in price but the Relative Strength Index makes a higher low. Traders and investors sometimes look at divergences for a possible pause within the current trend, which can, at times, lead to a reversal as occurred in AT&T’s case. AT&T’s stock started off 2019 to a good start trading above both its 100 and 200-day moving averages eventually finding support at its 100-day moving average in July after its earnings release.  The stock gapped up over 4% on Monday and is currently up over 20% for the year.  

(Chart above courtesy of ​www.tipranks.com​)    

Based on a survey of eight analysts offering 12-month price targets, the average price target for AT&T’s stock is $36.67.  According to that number, the stock is priced at a minor premium compared to Wall Street’s analysts and could be considered slightly overvalued around current levels near $37.35. 

AT&T has been a long-time stock favorite for long-term investors, and lately, the stock has come across some tough times. Hopefully, this can be the fundamental catalyst that the company needs to turn its stock price around. 

Investors in the telecom space should look to AT&T’s next earnings release on October 23rd for fresh news within the company.  

 


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