With AT&T (NYSE:T) stock apparently becoming much more liked by the Street and pundits and the shares’ valuation continuing to be very attractive, I remain upbeat on T stock.
And as I pointed out in previous columns, the company’s decision to divest its stagnant Warner Media unit, which is showing signs of weakening, will prove to be very positive for AT&T.
Luckily for the owners of T stock, that view appears to be gaining ground among investors, stock analysts, and commentators.
Reasons I’ve Been Bullish on T Stock
Shortly after AT&T announced the divestment of WarnerMedia in May and a related, future dividend cut, much of the Street adopted negative views on the shares. As a result, the conglomerate’s shares tumbled from $32.63 on May 10 to $22.17 on Dec. 15.
In a Sept. 17 column on T stock, I wrote that, “After eliminating the media assets that were an albatross around its neck, AT&T is poised to benefit meaningfully from government deals and higher data spending by its wireless customers.”
I also pointed out that, even after the stock’s dividend is cut, its payout rate will be competitive with that of its archrival, Verizon (NYSE:VZ), while its price to earnings ratio was meaningfully below that of VZ stock.
And in an article published on Nov. 19, I noted that the conglomerate’s core mobility and consumer wireline units had done very well in the third quarter. I also pointed out that WarnerMedia’s operating income had dropped meaningfully in Q3 versus the same period in 2019. The column also noted that AT&T should be able to use the funds that it had received from the WarnerMedia deal to meaningfully lower its debt.
Positive Side of AT&T and Its WarnerMedia Deal
On Dec. 22, Citi identified AT&T as one of five “stocks with the highest quality rank and low crowding rank.” It also named the shares as among five” stocks with the highest dividend rank and low crowding rank.”
Also bullish on T stock recently was Barclays, which raised its rating on the shares on Dec. 20 to “overweight” from “neutral.” Like me, Barclays expects the company to get a lift from the relative stability of its wireless business versus cable and thinks that AT&T’s results could be lifted by the infrastructure bill. The firm placed a $30 price target on the name.
Getting into the act as well, Morgan Stanley raised its rating on the shares to “overweight” on Dec. 16, citing, among other factors, what it sees as a more alluring valuation and its “solid” prognosis. The firm is upbeat on the company’s wireless business, but it trimmed its price target on the name to $28 from $32.
5G and Q4 Net Adds
The imminent launch of AT&T’s 5G network may be a powerful, positive catalyst for T stock. The new network will reportedly improve the company’s positioning versus its top competitors and allow it to meaningfully increase its internet browsing speeds. Further Seeking Alpha columnist Livy Investment Research reports that the change is anticipated to result in ” a new surge of plan upgrades and replacements” for AT&T.
Finally, on Jan. 5, the conglomerate reported that it had 1.3 million net postpaid adds in Q4, easily beating analysts’ average outlook of 968,000. The news indicates that its wireless business is performing very well, boding positively for AT&T and T stock.
Despite its recent gains, T stock still has a tiny forward price to earnings ratio of 7.4. Meanwhile, the Street is clearly warming up to the name, and the company has a few strong, positive catalysts.
Given these points, I continue to urge income and value investors to buy the stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.