AT&T Could Find Upside With Earnings Growth, Deleveraging, Raymond James Says In Upgrade

Although AT&T Inc. T may continue to suffer subscriber losses at its DIRECTVNOW segment, the impact is already reflected in the company’s shares, Raymond James said Friday.

The prospects of earnings growth and a strong de-levering story are likely to lend upside to shares going ahead.

The Analyst

Raymond James’ Frank Louthan upgraded AT&T from Market Perform to Outperform and established a $34 price target.

The Thesis

Expectations have already been adjusted to reflect continued subscriber losses at AT&T’s subscription streaming television service, Louthan said in the upgrade note.

The service has introduced simpler packages that exclude a number of channels, the analyst said. While this should boost DIRECTVNOW’s profitability as costs are eliminated, the packages are now less attractive to a wider audience, he said.

The limited content will make it tougher for DIRECTVNOW to attract new customers, Louthan said.

AT&T may try to offset this impact with a wider lineup of channels from its DTV OTT offering and its enhanced streaming service, both of which are expected to be launched later in 2019, the analyst said.

AT&T is now focusing on its FirstNet opportunity and cost savings from 5G, according to Raymond James.

The continued cross-sale of HBO and other content will likely reduce churn and offset price promotions, Louthan said.

The research firm raised revenue estimates for 2019 and 2020 from $182.9 million to $183 million and from $183.6 million to $184 million, respectively.

Raymond James raised EPS estimates for 2019 and 2020 from $3.58 to $3.59 and from $3.69 to $3.74, respectively.