AT&T

1AT&T’s Resurgence: Oppenheimer Upgrades Stock to Outperform

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  • AT&T upgraded to Outperform by Oppenheimer
  • Stock rises 1.7%, new price target $21
  • Overcame challenges in transformation
  • Network improvements drive ARPU growth
  • Broadband trends positive with fiber builds, FWA
  • Potential DirecTV-Dish merger seen as favorable
  • Expense reduction enhances free cash flow
  • Attractive valuation: 15% FCF, 7% dividend yields
  • Price target based on 2025 revenue multiple
  • Risks: increasing competition, margin pressures, broadband challenges.
In a recent development, AT&T (NYSE:T) has seen a significant boost, rising over 1.7% ahead of the market open on Friday. This surge follows Oppenheimer analysts’ decision to upgrade the telecom giant’s stock from Perform to Outperform, accompanied by a bullish price target of $21.
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Analysts at Oppenheimer point out that AT&T has faced challenges in recent years as it underwent a transformative phase to position itself as a dedicated connectivity provider. However, they believe that the headwinds that held the company back are now in the rearview mirror, paving the way for a positive trajectory.

One of the primary drivers of this renewed optimism is the significant increase in network capacity and coverage in both the wireless and wireline segments. According to Oppenheimer, these advances are helping to boost Average Revenue Per User (ARPU), a critical indicator in the telecom business.

The analysts also emphasise the beneficial impact of better broadband subscriber and revenue trends, citing fibre buildouts and the introduction of Fixed Wireless Access (FWA). These initiatives are likely to play a critical role in AT&T’s return to the market.

Another factor contributing to the bullish prognosis is the anticipated merger of DirecTV and Dish, which might improve AT&T’s market position even more.

AT&T
The company’s strategy focus on reducing expenses to improve free cash flowStrengthening the balance sheet is also considered a positive element.

From a valuation standpoint, AT&T appears to be an appealing investment, with a 15% free cash flow (FCF) yield and a 7% dividend yield. Oppenheimer’s $21 price prediction is based on a 2025 sales multiple of 2.2x and is backed by a discounted cash flow (DCF) model. This model takes a Weighted Average Cost of Capital (WACC) of 8.9% and a long-term growth rate of 0.5%.

However, Oppenheimer recognises several risks to the price goal. Increased competition, as well as margin and FCF growth constraints caused by pricing or market share dynamics, are possible threats. The experts also identify issues in the broadband ecosystem, such as competitive fibre deployments and cable DOCSIS 4.0 updates and Fixed Wireless Access (FWA). The exposure to the lead cable market is also viewed as a possible disadvantage.

In conclusion, Oppenheimer’s recent upgrading of AT&T to Outperform indicates a positive shift in opinion, with the business overcoming previous obstacles and positioned for growth. Investors will likely pay careful attention to how AT&T navigates the changing telecom landscape and capitalises on the highlighted tailwinds.

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