AT&T’s Bear Case Largely Has Played Out. The Stock Has ‘Limited’ Downside Risks.

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The AT&T logo is displayed on the shirt of an AT&T store employee.

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Andrew Harrer / Businesshala

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AT&T shares were rising on Friday after receiving an upgrade from Wells Fargo on limited downside risk.

Analyst Eric Lubecho upgraded the stock from underweight to underweight, and raised his price target from $26 to $27.

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“With shares up -11.9% (versus S&P of +27.0%) in 2021, we think downside risks are more limited, especially with expectations of continued strength in its core wireless business, which will be industry-leading in 2022. The service should provide revenue growth. ,” he wrote in a research note on Friday.

AT&T (ticker: T) wireless service revenue will grow about 3.8% in 2022 — ahead of rivals T-Mobile (TMUS) and Verizon Communications (VZ), Luebchow predicted. The company could add about 2.3 million postpaid phone nets, and account for about 26% of the industry’s gross additions, he said, even as the industry slows down in overall adds.

Telecom and media giant AT&T on Wednesday said it added 1.3 million net postpaid in the fourth quarter, above the consensus call for 968,000.

Lubecho also said that he expects free cash flow to increase by more than 10% by 2025.

AT&T agreed last May to merge its WarnerMedia business, which includes HBO, CNN and TBS channels, with Discovery and its TLC and HGTV channels. The European Commission earlier this week approved the merger of Discovery with WarnerMedia.

The analyst acknowledged that the company was still navigating significant headwinds that prevented it from upgrading the stock to overweight. He believes AT&T is at least six months behind Verizon in readying its 5G network for C-band, and two to three years behind T-Mobile. While AT&T expects to benefit from some churn as T-Mobile spins off Sprint 3G and 4G networks, that churn is likely to improve in 2023, he said.

“We have some concerns over the stability of Net Ad performance over the long term,” Lubecho wrote.

The company added about 270,000 fiber subscribers last quarter, which is lower than the Wall Street consensus forecast of 302,000 and the third-quarter figure of 289,000 fiber customers.

AT&T shares were up 2.5% at $26.23 on Friday.

Write to Sabrina Escobar at [email protected]

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