Janhvi Bhojwani | CNBC
Randall Stephenson, CEO of AT&T, talking on the Enterprise Roundtable CEO Innovation Summit in Washington, DC. on Dec. sixth, 2018.
Telecommunications big AT&T rose 0.7 p.c within the premarket Friday after an analyst at Raymond James upgraded the inventory, noting it trades at a extra engaging valuation than rival Verizon.
Analyst Frank Louthan raised his ranking on AT&T to outperform from market carry out. He additionally issued a value goal of $34 per share, which represents a 12.Three p.c upside over the subsequent 12 months.
“The outlook for optimistic earnings progress mixed with a robust de-levering story are more likely to drive the shares to outperform,” Louthan wrote in a observe to purchasers. “AT&T trades at a reduction to Verizon of ~3.5x turns of EPS and FCF, with 250 bp greater dividend yield. We consider that the mix of optimistic earnings progress and delivering over the course of the yr will being traders again to AT&T.”
AT&T shares slumped within the final 12 months, falling greater than 18 p.c in that point interval. Verizon, in the meantime, is up about 20 p.c.
AT&T was underneath stress because it confronted authorized hurdles to shut an $85.four billion merger with Time Warner.
The corporate additionally handled slowing buyer progress. Within the fourth quarter, the corporate added a web 134,000 telephone subscribers who pay a month-to-month invoice, effectively under estimates. AT&T’s churn charge additionally rose to 1 p.c final quarter from 0.89 p.c within the year-earlier interval.
AT&T’s streaming service, DirecTV Now, misplaced 267,000 subscribers within the fourth quarter, greater than was anticipated. The corporate mentioned the attrition charge was principally as a result of folks leaving the service after their discounted gives ran out.
Shifting ahead, earnings from DirecTV Now ought to enhance, Louthan mentioned:
First, profitability of DIRECTVNOW ought to enhance as prices are eradicated. Second, the product is now much less engaging to a wider viewers with restricted content material. Whereas present customers are in a position to preserve the 105 channel bundle, it could possibly be more durable to draw new prospects. We anticipate AT&T to offset this with a extra full lineup of channels from its delayed DTV OTT providing and its enhanced streaming service (seemingly bolted onto HBO GO), each anticipated later in 2019.
He additionally mentioned AT&T might outperform the broader telecom sector this yr, along with his earnings per share estimate for 2019 implying a return of 18 p.c from present ranges.
“The place we could possibly be fallacious is that if traders focus extra on the subscriber metrics as they report over the course of the yr (whatever the EPS and FCF impression) and commerce off that,” Louthan mentioned.
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