Amid a merger and acquisition fever, with AT&T Inc. (NYSE:T) and Genworth Financial Inc (NYSE:GNW) announcing pivotal deals yesterday, analysts are chiming in on the companies with their two cents. While one analyst calls the move a smart defense for T, the other sees the GNW acquisition as a logical step on back of various woes. Why do both analysts ultimately remain sidelined on these companies following the deals? Let’s delve further:
Yesterday, AT&T entered into an agreement to acquire Time Warner (NYSE:TWX) in a cash/stock deal valued at $107.50 per share, a move that FBR analyst David Dixon calls “a necessary high-risk defensive play.”
In light of the acquisition, Dixon reiterates a Market Perform rating on shares of T with a $42 price target, which represents a 12% increase from where the stock is currently trading.
As the analyst assesses the situation, the choice was a strategic, imperative must, motivated by a rise in regulatory pricing pressure inhibiting management’s capacity to bolster wholesale interconnection coupled with business data service prices amid the wireline segment, “a constrained capex budget that limits AT&T’s ability to roll fiber fast enough to address a competitively disadvantaged broadband product relative to cable,” “a strategic 5G wireless threat from cable,” and escalating programming costs.
“Management hopes this expensive acquisition can help defend its wireline and wireless franchise value to a greater extent than it can organically. While we see significant regulatory scrutiny, it is hard to see how this deal could be blocked following approval (with remedies) of the Comcast/NBC deal. Bottom line, we view this as modestly negative for AT&T because absent this deal management faces an even greater strategic threat to its core business,” Dixon concludes.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst David Dixon is ranked #366 out of 4,190 analysts. Dixon has a 59% success rate and realizes 13.1% in his annual returns. When recommending T, Dixon earns 0.0% in average profits on the stock.
TipRanks analytics exhibit T as a Buy. Based on 14 analysts polled in the last 3 months, 8 rate a Buy on T, while 6 maintain a Hold. The 12-month price target stands at $45.22, marking a nearly 21% upside from where the shares last closed.
Genworth Financial Inc
Genworth Financial shares are toppling nearly 8% today on back of investment firm China Oceanwide’s announcement yesterday to acquire the carrier in U.S. long-term care insurance for $5.43 per share in cash. From BTIG analyst Mark Palmer‘s eyes, this is a “scant” 4.2% premium to the company’s closing price on Friday.
In lieu of the deal, the analyst reiterates a Neutral rating on GNW with a price target of $5, which represents a 4% downside from where the shares last closed.
Palmer surmises that the deal likely stems from problems that plagued the company’s long-term care (LTC) insurance unit, considering the deal springs on the heels of GNW’s annual review of its LTC claim reserves, which has led the company to amplify the reserves by the tune of $400mm to $450mm on a pre-tax basis. This incurs an after-tax charge to the company’s earnings of $260mm to $300mm for its third-quarter.
Moreover, the analyst notes, “In downgrading GNW to Neutral (from Buy) on October 5 after the stock had achieved our $5 price target, we noted that we believed stable performance from the company’s LTC unit in particular would be a prerequisite for the company’s planned restructuring actions.”
“Genworth Financial’s (GNW) struggles to stabilize its troubled long-term care (LTC) insurance unit, to delever its holding company and to unlock the value of its U.S. mortgage insurance unit may have proved too challenging as the company yesterday announced that it had agreed to be acquired by China Oceanwide Holdings Group Inc. […]” Palmer contends.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, one-star analyst Mark Palmer is ranked #3,641 out of 4,190 analysts. Palmer has a 50% success rate and faces a loss of 2.0% in his yearly returns. When recommending GNW, Palmer loses 0.6% in average profits on the stock.
TipRanks analytics demonstrate GNW as a Hold. Based on 5 analysts polled in the last 3 months, 4 maintain a Hold on GNW, while 1 issues a Sell. The consensus price target stands at $1.75, marking a 66% downside from where the stock is currently trading.