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Behind AT&T’s potential big deal

Talking Numbers

The M&A market is heating up.

And the latest rumored merger involves the second-largest wireless operator, AT&T, and one of America’s top satellite TV providers, DirecTV.

The telecom giant is reportedly in talks to buy the satellite TV provider for a whopping $50 billion, or roughly $95 per share.

And according to reports, the deal, which could be completed in as early as two weeks, would give AT&T 27 million subscribers for PAY TV. Thus, creating a pay television giant close in size to where Comcast, the parent company of NBCUniversal, will be if it completes its pending acquisition of Time Warner Cable.

(Watch: Why AT&T wants DirecTV)

Now, shares of AT&T are in the red over the past 12 months, while DirecTV has rallied more than 50 percent. But, should you buy AT&T on this mega-deal?

“We believe this is an overleveraged story,” said Chad Morganlander of Washington Crossing Advisors.

And his reasoning is all in the numbers.

“When you go through the numbers you have a total revenue of about $165 billion. Total overall market cap with DirecTV would be about $235 [billion]. But they have about $95 billion of combined debt,” Morganlander pointed out. “We tend to shy away from companies with a lot of debt.”

(Read: DirecTV and Green Mountain are big market movers)

And in the case of AT&T, the technicals are just as bearish.

“AT&T is a stock and a chart that I would not chase here,” said Richard Ross of Auerbach Grayson.

Ross said despite a recent rally from the 2009 lows, the AT&T chart has formed a bearish double top and run into some key technical resistance long term.

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Bearish chart for AT&T.

“This stock has now made lower highs going back to the tech bubble back in 2000, the financial bubble in 2007, and once again at that double top here at the QE bubble,” Ross cautioned. “This is a stock whose longer term trend is down, despite the fact that we had this short-term bounce.”

Do you agree with Ross and Morganlander’s bearish views on AT&T? Check out the video and make the call.

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