On Monday, Warner Bros. Discovery began trading as a separate entity for the first time after being spun off from AT&T (T). By choosing to go down the tax-free route rather than pursue a more complicated split-off, the spinoff appears to have resonated well with investors.
One reason for the positivity revolves around a sense the company will now be able to fully turn its attention to the wireless market, where T faces stiff competition. Mirroring investor sentiment, J.P. Morgan’s Philip Cusick sees the logic of the move.
“A more Communications-focused company, AT&T now looks more like Verizon than it has in years after shedding the distractions and revenue drag of a declining satellite video business and the capital obligations of the Warner/HBO media businesses,” the analyst explained. “Management is now focused on reinvesting in the wireless business and expanding the fiber footprint to grow its broadband business and business offerings.”
That said, although the telecom giant has succeeded at expanding its wireless postpaid phone base and keeping hold of its customers, as new carriers enter the picture and considerable surplus network capacity is activated by all MNOs (mobile network operators), Cusick thinks that from here on in the wireless industry “may become more challenged.”
To support consumer broadband revenue, and “offset legacy wireline losses,” the company will also need to invest in fiber, despite Cusick anticipating “essentially no broadband subscriber growth for the next three years.” And as a whole, Cusick says he remains “wary” of the wireless industry, and his estimates remain lower than management’s guidance for EBITDA and FCF growth.
Despite the caveats, Cusick rates AT&T shares an Overweight (i.e. Buy) along with a $22 price target. The figure implies ~12% upside from current levels. (To watch Cusick’s track record, click here)
What does the rest of the Street have in mind for T stock? There are differing opinions here. Based on 8 Buys, 6 Holds and 1 Sell, the stock boasts a Moderate Buy consensus rating. However, most evidently think the stock is undervalued; going by the $27.21 average target, the shares are anticipated to climb 39% higher in the year ahead. (See T stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
