Cody Miecnikowski

About the Author Cody Miecnikowski

Cody is a current student at Penn State University double majoring in Finance and Economics. He is the VP of Finance for TAMID Consulting.

Analysts Question AT&T Inc. (T) In Light Of DirecTV Synergies and Mexican Expansion

It’s been essentially a year since AT&T Inc. (NYSE:T) hit its 52-week high of $37.48 and analysts are continuing to weigh in on the company’s future health. Between the DirecTV synergies and Mexican expansion, AT&T has a variety of avenues to ultimately improve earnings per share (EPS) and free cash flow (FCF). The opportunity for growth exists, but not all analysts agree that AT&T will succeed.

The U.S. government is close to approving AT&T’s proposed bid to buy DirecTV. The deal is valued at $48.5 billion and would form the largest pay-television company in the United States. AT&T would gain 34 million subscribers, including around 13 million Latin American users.

Analyst Colby Synesael of Cowen & Co. weighed in on AT&T on July 2, upgrading his rating from Market Perform to Outperform and increasing his price target to $40. This is up from his previous price target of $35 in order to reflect the possible revenue and synergies from the DTV deal.

Synesael noted, “We are upgrading T to Outperform” on 3 essential conditions. First, DTV must be “accretive to EPS/FCF.” Secondly, “valuation is cheap vs. historicals.” Lastly, “an in-home/mobile video offering is differentiating.” He continues, “To that last point we believe over the coming year the acquisition of DTV will prove as much strategically beneficial as it is financially which we think remains a non-consensus view.”

According to TipRanks, Colby Synesael has a 68% success rate recommending stocks, earning a +18.2% average return per recommendation.

AT&T plans to invest $3 billion into its network expansion in Mexico, aiming to cover 100 million people by 2018. As key competitors like Sprint, T-mobile, and Verizon all continue to expand as well, some analysts are not as optimistic on AT&T.

One of these analysts is Jonathon Atkin of RBC Capital, who weighed in on AT&T with a Sector Perform rating on June 30. Atkin slightly raised his price target to $37 from $33, suggesting a 3.44% potential upside from where the stock is currently trading.

Jonathan Atkin has a 71% success rate recommending stocks, earning a +13.4% average return per recommendation.

Barclays analyst Amir Rozwadowski upgraded his position on June 23 to a Buy. He raised his previous $34 price target to $39 following a visit to AT&T’s headquarters. The analyst suggested there are a significant number of levers, including revenue and cost synergies from the DTV deal that could have a positive impact on AT&T’s bottom line. He notes that these positive benefits will outweigh the ongoing competitive pressure.

Rozwadowski explains that the “combination of dissipating external (i.e. earnings deceleration due to increased competition) and internal (i.e. dividend coverage, leverage ratios etc.) concerns coupled with the prospect for a positive earnings revision cycle coming out of the close of the deal leads us to shift to a relative Overweight rating.”

Out of 10 analysts polled by TipRanks, seven analysts are bullish on AT&T and three are neutral. The average 12-month price target for AT&T is $38.11, marking a 7.12% potential upside from where the stock is currently trading. On average, the analyst consensus for AT&T is a Moderate Buy.

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