Jefferies Adds AT&T To Franchise Pick List, Says Street Is Too Negative

In a report published Wednesday, Jefferies analyst Mike McCormack maintained a Buy rating on

, while raising the price target from $39 to $40. The company was also added to the Franchise Pick List on expectations of compelling investment returns. AT&T's growth prospects are expected to be driven by Mexico and immediate cash flow benefits from

, apart from cost savings and revenue and capex synergies. "We continue to believe the Street has an overly bearish view on AT&T, driven by conservative estimates, and questions regarding the DirecTV and Mexican acquisitions. DirecTV should remove lingering dividend concerns while providing a complementary product portfolio. Mexico could enhance growth opportunities through a differentiated offer," analyst Mike McCormack mentioned. The acquisition of DirecTV is expected to be highly beneficial in terms of increased scale, content and distribution setups. In the report Jefferies noted, "Through its acquisitions of Iusacell and Nextel Mexico, AT&T becomes the third largest wireless provider in Mexico; however, with just over 5% market share, we see significant opportunity for domestic growth. AT&T's opportunity lies in building out 4G (only ~35% of pops in Mexico are covered by LTE) and increasing smartphone penetration (just over 50% vs. the US at 75%)." The EPS estimate for F2016 has been raised from $2.66 to $2.88 to reflect benefits from the DirecTV acquisition.