UPDATE: Scotiabank Upgrades AT&T (T) to Sector Perform; Downside Risk Reduced on Divestitures
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(Updated - June 16, 2021 4:15 PM EDT)
Scotiabank analyst Jeff Fan upgraded AT&T (NYSE: T) from Sector Underperform to Sector Perform with a price target of $31.00 (from $28.00).
The analyst commented, "Over the past two years, T shares have underperformed at -9% compared to VZ's -2%, TMUS +>90% and +46% for the S&P 500. Over the past year, T has transitioned to a new senior management team, and has recently announced the divestiture of DirecTV and the spin-out of Warner Media to merge with Discovery. We believe these transactions will de-lever the balance sheet and reduce the secular risk exposure to satellite video and the volatility and investment related to media (exhibit 3 and 4). These were the main reasons for our SU rating. Pro forma the transactions, we believe T shares are attractively valued and our target implies 6.3x NTM EV/EBITDA and ~5.5% dividend yield post the transactions closing. Our revised target is based on: $22/share for core AT&T connectivity, $1.60/share for DirecTV and $7.40/share for Warner Media, based on Discovery's consensus target share price of $43. Overall we believe post divestitures the downside risk is now reduced as management can focus on executing the core connectivity business, resulting in our rating change to Sector Perform"
Shares of AT&T closed at $29.28 yesterday.
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