AT&T's 2018 Potential Makes Near-Term Weakness Worth It

Despite shares of AT&T Inc. T hitting a new 52-week low of $33.81 Wednesday morning, analysts at Baird aren't ready to throw in the towel. The firm's William Power maintains an Outperform rating on AT&T's stock with a price target lowered from $43 to $42.

AT&T's revenue for the third quarter of $39.7 billion was in-line with what the analyst expected, while the headline EPS of 74 cents was good for a 2-cent beat -- although it would have been in-line excluding an income benefit. Aside from the headline numbers, investors were likely concerned the entertainment segment where margins fell from 23.5 percent a year ago to 21.3 percent. However, the margin decline "shouldn't have been a significant surprise" although it is "frustrating."

Meanwhile, wireless margins continue to remain "steady" and the merger with Time Warner Inc TWX is on track to close, the analyst said. Coupled with the potential for tax reform from the White House and an attractive dividend yield, the stock may not seem as troubled as some suggest.

The move to the downside in AT&T's stock on Wednesday may have come as a surprise to the analyst. While sentiment surrounding the stock remains "abysmal," the stock should have seen at the very least a "modest" relief rally.

Bottom line, despite some "near-term pain" in AT&T's stock, multiple initiatives ahead should support the stock in 2018 and beyond.

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Image credit: Mike Mozart, Flickr