Blue Chips Dominate Jefferies Value Stocks to Buy

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One way or another, the Brexit decision will be settled soon, and investors can start to worry about other issues that will influence the direction of the stock market. At the end of the day, all that really matters is earnings, and now’s the time to focus in on large cap value stocks that can deliver solid numbers and stay competitive in their respective sectors.

This week’s top value calls from the analysts at Jefferies focus on blue chip companies that are, for the most part, very liquid and offer a degree of safety for investors. All are rated Buy at Jefferies.

AT&T

This company had an outstanding first quarter from a stock price standpoint and could be poised to go higher. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.

With its shares trading at a very cheap 14.3 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company’s first-quarter revenue rose 24% versus the year-earlier period primarily due to the July 2015 acquisition of DirecTV for $49 billion in equity value. The company added 2.3 million wireless subscribers during the first quarter. About 328,000 of the additions were DirecTV net adds. The company’s Entertainment Group broadband grew with 186,000 IP broadband net additions.

Jefferies noted that after evaluating three scenarios that address and combat cannibalization, certain new initiatives should be impactful. As over-the-top (OTT) video becomes more prevalent, the analysts examined the per-subscriber economics relative to that of traditional video, and highlight key implications in a streaming video world. With AT&T set to launch new offerings later this year, the analysts provide a case study highlighting potential opportunities and risks. They see the potential for modest accretion in 2020, with further upside should AT&T successfully minimize cannibalization within its existing base.

AT&T investors receive a huge 4.65% dividend. The Jefferies price target for the stock is $44, and the Thomson/First Call consensus target is $39.56. Shares closed most recently at $41.30.

American Electric Power

This industry leader is also a solid dividend-paying company that only 10.2% of funds own. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. They also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive. Jefferies feels that a Genco sale could fetch as much as $2 billion, and while the earnings would be missed, reinvestment or purchases could fill the gap.

American Electric Power shareholders receive a 3.37% dividend. The Jefferies price objective was raised to $75, and the consensus target is $68.18. Shares closed on Wednesday at $66.50.