AT&T Inc (NYSE: T) has been a disappointment for shareholders this year, with the stock still down more than 25% from its high in May, but Morgan Stanley says the days of pain are finally over.
Morgan Stanley analyst defends his bullish call
Morgan Stanley’s Simon Flannery pinned a price target of $28 on AT&T this morning as he upgraded the stock to “overweight”. Defending his bullish call on CNBC’s “The Exchange”, the analyst said:
Our call is primarily based on combining the attractive entry point on valuation with the upcoming completion of WarnerMedia-Discovery deal. The lack of clarity around it is holding investors back. But over the next few months, we’ll get more clarity around the structure they’ll have for shareholders to complete the merger.
Other reasons he likes AT&T include strong subscriber growth over the past two quarters. Its core communications business, Flannery added, is likely to keep momentum in the coming years.
Dividend yield to remain enticing for shareholders
AT&T has been offloading assets to position itself as a pure-play telecommunications company and benefit from the rapidly growing 5G market. Its $43 billion deal with Discovery will weigh on the dividend payouts, but Flannery is convinced the yield will remain enticing for the shareholders.
On a pro forma basis, AT&T will have a yield of about 7.0%, which will still be one of the top three or top five in the S&P 500. With a de-leveraged balance sheet, free cash flow after dividend; so, we think it should be a really interesting story.
According to the Morgan Stanley expert, AT&T will also benefit from the metaverse, considering whatever it eventually shapes into, connectivity will remain an essential component of it.
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