Sell-Side On Elliott's Suggestions For AT&T: Already Working On It, Impact Likely Limited

Sell-side analysts said Tuesday that much of what activist investor Elliott Management is suggesting for AT&T Inc. T is already being contemplated — but public criticism from the new investor might make the company more aggressive and forthcoming about its plans.

The activist hedge fund said Monday it has taken a $3.2-billion stake in the telecom giant, and released a letter outlining ideas for driving the stock higher, with heavy criticism of the company for straying far from its telephonic origins to become a media conglomerate.

By contrast, Elliott said competitor Verizon Communications Inc. VZ has remained focused on the wireless phone business, which may put it ahead of AT&T as the industry moves to 5G.

AT&T shares were trading 1.99% higher at $37.50 at the time of publication Tuesday. 

The Analysts

JPMorgan’s Philip Cusick has an Overweight rating and $39 price target on the stock.

Bank of America Merrill Lynch analyst David Barden maintained a Buy rating and $37 price target.

Citigroup’s Michael Rollins maintained a Buy rating on AT&T and raised the target price from $37 to $42.

Barclays’ Kannan Venkateshwar maintained an Equal Weight rating and increased the price target from $31 to $35.

JPMorgan: 'AT&T Will Likely Engage With Elliott' 

JPMorgan’s Cusick said many changes sought by Elliott are already underway at AT&T, but the added attention and pressure might push the telecom into quicker action.

AT&T could better outline plans for leverage and stock buybacks; it may decide to forgo further acquisitions; and it could be more aggressive in discussing cost cutting plans, the analyst said. 

“While many of these potential changes are already being addressed by AT&T or have long been a focus for long-time investors in communications, we expect that AT&T will likely engage with Elliott and that some early announcements could result.” 

BofA: Core Still Strong

While Elliott criticizes AT&T’s breadth, BofA's Barden said he doesn’t think it has hurt the core, and added that there are opportunities in the media businesses.

“The media business continues to grow at a premium and fixes are underway to shore up the Entertainment group in the face of satellite video declines,” the analyst said.

Some of Elliott’s points about strategic focus and cost-cutting may be valid, Barden said, but he agreed the company seems to be already addressing them.

Citi: Multiple Expansion

Rollins said AT&T has opportunities to reduce leverage, monetize non-core assets and improve returns with possible buybacks. The analyst likes the stock. 

“Given the recent drop in the 10-year Treasury rates and our stable operating outlook, we see an opportunity for further multiple expansion,” Rollins said. 

Barclays: Impact Likely Limited

Venkateshwar agreed with Elliott on the need to sell some assets, such as DirecTV, but said it’s not clear who might buy them. Elliott’s most salient ideas may have to do with its share value and buyback targets, which he said could be heeded by AT&T, which would help close the multiple differential with Verizon.

Overall, however, the “activist impact on T (is) likely to be limited,” Venkateshwar said.

Related Links:

AT&T's Stock Boosted After Activist Investor Elliott Management Discloses $3.2B Stake

BofA Bullish On AT&T: 'The Network Has Never Performed Better'

Posted In: 5GBank of America Merrill LynchBarclaysCitigroupDavid BardenJPMorganKannan VenkateshwarMichael RollinsPhilip CusickAnalyst ColorPrice TargetReiterationAnalyst Ratings