AT&T Downgraded By Citi On Dividend Demand For Interest

AT&T Inc. T shares have climbed 6 percent in the past one month. Citi’s Michael Rollins downgraded the rating on the company from Buy to Neutral, citing largely valuation. The price target has been raised from $42 to $46.

The low interest rate environment, favorable cost cutting prospects from the DIRECTV DTV acquisition and a solid dividend yield have boosted AT&T’s shares, putting valuation multiples near historic highs, analyst Michael Rollins noted. He added that for the shares to rise further, rates would need to decline; however, the 10-year treasury rate is expected to rise over the next 6-18 months, limiting further upside for shares.

2Q16 Preview

AT&T is scheduled to report its 2Q16 results on July 21. Rollins reduced the EPS estimate for the quarter falls from $0.73 to $0.71, a penny below the consensus, on lower Wireless service revenue. The total revenue and OIBDA estimates are at $40.9bn and $13.25bn, versus consensus expectations of $40.7bn and $13.66bn, respectively.

The EPS estimates for 2016 and 2017 have been reduced from $2.90 to $2.86 and from $3.01 to $2.98, respectively.

“We could be more positive [on the stock] if free cash flow growth is better than expected while we see debt levels as a risk should interest rates rise,” Rollins commented.