Telecom & Wireless

Why Investors and Analysts See AT&T as the Best Carrier Again

AT&T was raised to Outperform with a $40 price target (versus a $35.57 close) at Cowen.

Oppenheimer reiterated an Outperform rating and raised its price target to $40 from $36. For 2016, the firm raised its revenue and synergies forecast for the AT&T/DirecTV pro forma and raised its EPS by four cents to $2.59.

Credit Suisse continues to believe AT&T has catalysts that could drive appreciation in 2015. The catalysts at AT&T involve its transaction with DirecTV and increased guidance for synergies. In addition to this, the future for Mexico looks bright but may take some time to ramp up. AT&T was rated Outperform with a price target of $38 at Credit Suisse.

Bank of America Merrill Lynch raised its rating to Buy from Neutral late in June as well. The firm raised its price objective to $40 from $35 in its call. Merrill Lynch thinks AT&T will generate improved financial performance via a relatively more stable wireless competitive climate and from benefits in its DirecTV buyout that are higher than what the company has officially targeted.

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Jefferies believes the DirecTV deal closing will remove a lot of overhang. The firm sees it helping the dividend coverage question and also believes that the synergies created by the deal are being underestimated by Wall Street. Jefferies even sees upside to wireless margins and potential earnings multiple expansion. Jefferies lifted its target recently to $40 from $39.

UBS recently raised AT&T to Buy from Neutral and the price target was raised to $42.00 from $34.00.

Barclays recently raised its rating to Overweight, and the price target was raised to $39.00 from $34.00.

Also, JPMorgan upgraded the company to an Overweight rating from Neutral, and it raised the price target to $40 from $35 in its call in June.

So, all in all, it is strange to see such a massive upgrade cycle. It is even stranger that it happened after AT&T was removed from the Dow Jones Industrial Average to make room for Apple Inc. (NASDAQ: AAPL).

Here is how AT&T sits now: After raising its dividend last year, the company is on the verge of finally closing the DirecTV merger. AT&T shares are now up 9.4%, if you include dividend performance on a year-to-date basis. That would make it the sixth best-performing Dow stock, had it not been removed from the index.

AT&T shares keep ticking up as well, with this last week being the exception. It closed at $35.73 on Thursday, versus $36.12 at the end of the previous week. Still, its consensus analyst price target has crept up to $36.54 (from $35.78 just a few days earlier). The highest analyst price target is now $42.00, and AT&T has a 52-week trading range of $32.07 to $37.48.

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Again, it is highly unusual to see this many upgrades on such a well-known stock in such a short period. That being said, a lot of this is hinging on the DirecTV acquisition getting final regulatory approval from the U.S. Department of Justice. If that is somehow blocked, when all reports have pointed to approval, then a lot of that bullishness likely would fade.

AT&T’s 5.2% dividend yield is not exactly hurting investors’ feelings either.

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