AT&T has experienced a significant decline of 29% over the past five years, while the S&P 500 has surged nearly 80%. However, Oppenheimer analyst Timothy Horan believes that the telecommunications company is now an attractive investment. In a recent note, he upgraded AT&T’s stock (T, +1.19%) from perform to outperform.
Over the years, AT&T has worked hard to reposition itself as a pure play on connectivity, and Horan believes that the difficult work has paid off. He suggests that the challenges the company faced are now in the past, and AT&T is poised to benefit from several tailwinds.
One area where AT&T has made significant improvements is in its network capacity and coverage across wireless and wireline categories. These advancements have already contributed to an increase in average revenue per user. However, Horan believes that Wall Street underestimates the potential for pricing improvements.
Recently, AT&T raised the price of its core unlimited plans by 99 cents per line. This change could result in an estimated $700 million to $800 million in incremental revenue. However, Horan notes that consensus expectations do not fully account for this potential revenue boost.
Conclusion: Despite its recent struggles, AT&T’s stock presents an opportunity for investors. The company’s efforts to enhance its network and improve connectivity are expected to drive growth. With increasing pricing power and potential revenue uplifts, AT&T’s stock is worth considering for long-term investment.
Horan’s Positive Outlook for AT&T’s Fiber and Fixed-Wireless-Access Trends
Horan also applauds AT&T’s progress in cost-cutting measures, which contribute to free-cash-flow. This particular metric holds great importance for AT&T investors, primarily due to the company’s commitment to its dividend. Horan envisions a prosperous future for AT&T, predicting a “very strong” balance sheet in just one year. He believes that the net-debt-to-earnings ratio, prior to interest, taxes, depreciation, and amortization, will reach an impressive 2.5. Notably, the majority of AT&T’s debt will be fixed, with the majority being due after 2023, and an average interest rate of approximately 4%.
In light of these positive developments, Horan suggests that there is little incentive to pay down debt. Instead, he anticipates that AT&T will begin engaging in stock buybacks.
Horan sets a price target of $21 for AT&T’s stock, which represents an increase of over 25% from its current level of $16.60. As of Friday’s session, the stock has already risen by 1.2%.
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