Sell-Side Raises Expectations On AT&T After Earnings Beat, Guidance

AT&T Inc. T shares were settling on Tuesday after surging a day earlier on a third-quarter earnings beat and news of a capital allocation plan that looks to address some concerns of an activist investor, but sell-side analysts projected still higher price ceilings for the stock.

AT&T's stock hit a new high for the year with investors liking the news about the plan to respond to activist investor Elliott Management and the earnings beat enough to offset concerns that revenue missed and was down 2.5%, led by falling Warner Media revenue.

While analysts kept ratings intact, they boosted price targets on strong forward projections and a new capital allocation plan.

The Analysts

Raymond James analyst Frank Louthan reiterated an Outperform rating and raised the target price from $40 to $45.

Credit Suisse analyst Douglas Mitchelson remains Neutral on the stock, but raised the target price from $29 to $36.

Tigress Financial’s Ivan Feinseth kept a Buy rating on the stock.

The Theses

Feinseth likes AT&T’s long-term opportunities, “including DTC streaming, 5G, and FirstNet all continuing to drive positive incremental growth.”

He also cited AT&T’s capital allocation plan’s commitment to optimize its balance sheet, pay down debt, and that the company sees no need for additional big acquisitions as it continues to monetize its Warner Media properties.

“I believe further upside exists from current levels and continue to recommend purchase,” Feinseth wrote on Tuesday.

Video Subscriber Losses

Losses of premium TV and AT&T Now subscribers came in worse than expected, but Louthan said that news isn't really a big deal because of their insignificance as a source of free cash flow generation.

Louthan said AT&T's wireless strategy, with the its focus on 5G and the new network for emergency responders called FirstNet, are both working.

"We believe AT&T can perform better over the course of the year with positive earnings growth and a strong de-levering story," Louthan wrote in a note.

Guidance Question

Mitchelson noted the company's three-year guidance is way above Street estimates, and whether it will make that guidance is a big question.

"By our measure, the guidance requires strong opex execution, and debatable market share improvements vs. trends and an absence of secular pressures in wireless and media," he wrote.

Still, Mitchelson raised the target price, citing a lower cost of equity and impact of cost cuts.