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AT&T: Time to Load up on Shares? Not Just Yet, Says Wells Fargo
Stock Analysis & Ideas

AT&T: Time to Load up on Shares? Not Just Yet, Says Wells Fargo

As Covid-19 hit global markets in early 2020, stocks tumbled across the board. What followed, however, was a swift recovery that saw shares of many industry giants attain new heights.

The same, however cannot be said of AT&T (T). The telecom giant has been in a slump, left out of the post-covid recovery and shares still sit 10% into the red in 2021.

The company’s attempts to change direction after failed additions to the roster – AT&T forked out $49 billion for DirecTV in 2015, then another $85 billion for Time Warner in 2018 – has yet to find favor with investors. Or with Wells Fargo’s Eric Luebchow.

Ahead of the company’s 3Q21 earnings (Thursday, Oct 21), the analyst has been tweaking estimates but what hasn’t changed is Luebchow’s Underweight (i.e., Sell) rating or $28 price target, which implies ~9% downside. The analyst believes there to be “too many moving pieces/risks to recommending the stock.” (To watch Luebchow’s track record, click here)

The new estimates are down to two factors: after a lamentable six-year escapade in the satellite TV business, the company completed the spinoff of DirecTV into a new entity with TPG at the end of July, and as such, Luebchow has adjusted estimates to exclude video contributions. While revenue will take a hit, the divestiture should see margins expand.

However, those will be somewhat mitigated by the company’s heavy promotional activity. The effect of “aggressive device subsidies,” has seen an “impressive proportion of gross adds,” yet the promotional push results in the lowering of Mobility EBITDA margin by ~250 bps.

Accordingly, Luebchow’s revenue expectations for 3Q21E, 2021E, and 2022E are a respective $39 billion, $168.1 billion, and $158 billion, compared to the previous $42.5 billion, $173.7 billion, and $175.4 billion estimates. There are also changes on the bottom-line, but in the other direction. While the EPS estimate for 3Q21 remains at $0.77, for 2021E, and 2022E, these move from the prior $3.17 and $3.16 to $3.28 and $3.21, respectively.

So, that’s Wells Fargo’s take, what does the rest of the Street have in mind for T? On the rating front, only marginally better expectations; based on 7 Holds and 4 Buys in addition to Luebchow’s Sell, the stock has a Hold consensus rating. However, shares are anticipated to add 23% of muscle over the coming months, given the average price target clocks in at $31.56. (See AT&T stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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