3 Reasons Morgan Stanley Just Upgraded AT&T

AT&T Inc. T shares were trading higher Thursday after the company landed an analyst upgrade from a high-profile Wall Street firm.

The AT&T Analyst: Morgan Stanley analyst Simon Flannery upgraded AT&T from Equal-Weight to Overweight and cut his price target from $32 to $28.

Related Link: Is Now The Time To Buy These 6 Undervalued Communication Services Stocks?

The AT&T Thesis: Flannery said his upgrade was based on three important factors.

First, he said AT&T has a solid financial and operational outlook. Second, he said the stock has an attractive absolute and relative valuation. Finally, Flannery said AT&T has important near-term catalysts, the biggest of which is the closing of the merger of WarnerMedia with DISCOVERY COMMUNICATIONS INC. DISCA DISCB DISCK.

“We believe that recent stock price underperformance has created an attractive risk reward opportunity, while we see a number of catalysts to unlock value by mid-2022,” Flannery wrote in the upgrade note.

AT&T will receive roughly $43 billion as part of the TimeWarner deal, and Flannery said the remaining AT&T business will be a more streamlined communications company.

Incredibly, AT&T shares are currently trading near multi-decade lows, and Flannery said the stock’s valuation is now simply too attractive for investors to ignore.

The stock’s poor performance is not reflective of AT&T’s solid numbers in recent quarters, the analyst said. Last quarter, wireless service revenues were up 4.6%, and Flannery is projecting sequential EBITDA growth in the fourth quarter and low-single-digit revenue and EBITDA growth to continue over the next several years.

Benzinga’s Take: AT&T is certainly not the type of investment that is going to generate life-changing returns or impress your friends on social media. But the stock likely has limited downside trading at just 6.9 times forward earnings, and its 8.8% dividend yield is extremely attractive for a blue chip investment like AT&T.