Stock Analysis & Ideas

AT&T Earns Upgrade with Discovery Deal in Sight

AT&T (NYSE: T) is a global, diversified telecommunications company. I am bullish on T stock.

Of course, I’m not the only commentator who’s bullish on A&T. Indeed, one big-bank analyst made an interesting “discovery” (pun fully intended) and just gave T stock a rating upgrade.

At the same time, T stock might be in the midst of a technical turnaround. It’s been getting smashed since May, but a major merger could be just the catalyst the bulls need for a long-term rebound.

Plus, while you’re waiting and holding T stock, you can collect a generous 8.75% annualized dividend yield. With all of that in mind, let’s see what one Wall Street expert has to say about AT&T’s future prospects.

A Clearer Story

Would it be fair to call AT&T a “story” stock? That might sound like an unusual designation as AT&T is among the oldest and most established companies in the United States.

Yet, there is a story in progress with AT&T as the company pivots towards 5G network connectivity, as well as the acquisition of value-packed media-content assets.

Knowing this, Morgan Stanley’s Simon Flannery assured investors that AT&T will soon have a “clearer” story and that “important catalysts” in 2022’s first half could give new life to T stock.

This vote of confidence is opportunely timed, as AT&T’s investors could definitely use a shot in the arm after this year’s brutal share-price beatdown from $32 to $23.

Flannery upgraded T stock from equal weight (similar to neutral) to overweight (similar to buy). He also lowered his price target on the stock from $32 to $28, but that’s understandable as price-target adjustments typically must be made after stocks take a sharp downturn.

Besides, the Morgan Stanley analyst feels that the AT&T share price is undervalued.

“At these levels we believe the stock is discounting an overly negative outlook; indeed less than one third of the covering analysts have a positive rating on the stock,” Flannery observed.

Discovering a Bullish Catalyst

We’ll provide more details on exactly how the analyst community feels about T stock in a moment.

First, however, we should take note of the “important catalysts” that Flannery was referring to.

Among those, according to Flannery, are AT&T’s “solid” financials and recent operating performance, along with the company’s “industry-leading postpaid phone adds.”

Yet, we can’t ignore what might be the coming year’s biggest catalyst for T stock. Specifically, Discovery, Inc.’s (DISCA) merger with AT&T’s WarnerMedia, could take place by the middle of 2022.

Once that merger is complete, AT&T will be left with “a much clearer and focused communications business,” according to Flannery.

Reportedly, Discovery forecasts additional 2023 earnings of $4.1 billion, with an upside potential of around $4.7 billion. So, this deal should be value-accretive to AT&T.

Consequently, T stock should move higher sooner or later, though investors should be patient.

“We believe AT&T’s core communications business is undervalued and should re-rate as we get more clarity on the WarnerMedia/Discovery transaction,” Flannery explained.

Wall Street’s Take

Turning to Wall Street, AT&T has a Moderate Buy consensus rating, based on four Buys, three Holds, and one Sell assigned in the past three months. The average AT&T price target of $29 implies 19.9% upside potential.

The Takeaway

T stock still offers a terrific dividend yield and an irrationally low share price.

Plus, with the impending closure of the WarnerMedia/Discovery deal, it’s hard to envision a better bargain than AT&T stock.

Not every analyst likes T stock now, but Flannery’s cited catalysts offer the hope of a powerful turnaround.

Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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