Has AT&T stock been punished enough? One analyst says the ‘bear case’ is mostly exhausted

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According to one analyst, after another year of underperformance versus the S&P 500, AT&T Inc.’s “bear case” could mostly outperform itself.

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While AT&T T,
+2.79%
Still facing many challenges, Wells Fargo senior equity analyst Eric Lubecho now considers his stock to be quite valuable. He downgraded shares to equal weight on Friday, while raising his price target from Re 1 to $27.

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AT&T shares fell nearly 14% in 2021 as the S&P 500 SPX
-0.16%
increased by 27%. This underperformance leaves Lubecho with the sense that “the downside risks are more limited” for the telecom stock. There are also some positives, including that AT&T could deliver the strongest service revenue growth in the wireless industry through 2022, he wrote.

Additionally, AT&T is expected to complete its shedding of WarnerMedia assets later this year. The part of AT&T that Verizon Communications Inc. Will continue to trade VZ at around 1 to 2 times discount,
+2.00%
and T-Mobile US Inc. tmus,
-4.70%
Based on earnings before interest, taxes, depreciation and amortization (Ebitda), he said, “should be covered safely despite a potential yield of ~6%.”

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Luebchow also sees “some optionality for share repurchases (or dividend growth)” over time as AT&T progresses with its goals on free-cash-flow growth and reduction in leverage.

AT&T HBO Max is more than just a customer standpoint

Still, he isn’t ready to accelerate on the name, arguing that there are still some challenging elements to AT&T’s story. For one, the company is months behind Verizon in building out its 5G network. c-band spectrum, based on Luebcho’s interactions with the infrastructure players. Additionally, the company has the “weakest mid-band spectrum portfolio”, which could impact its ability to add net customers in the long run.

AT&T shares are up 0.6% in Friday afternoon trading. They have slipped about 3% over the past three months as the S&P 500 has gained about 7%.

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