By Dhirendra Tripathi
Investing.com – AT&T (NYSE:T) was a gainer Friday as a pullback in its share price and the refocusing of the company on its telecom business prompted two upgrades.
As per a deal announced Monday, the HBO owner will merge its assets under WarnerMedia with Discovery (NASDAQ:DISCA). AT&T shareholders will get stock representing 71% of the new company with Discovery shareholders owning the rest.
UBS (NYSE:UBS) analyst John Hodulik raised the price target to $35 from $32 while putting a buy on the stock, up from neutral. The latest target is 16.7% higher from the stock’s current level of $30. The simplified structure and improved visibility create attractive risk-reward, he said.
Hodulik believes that while AT&T lowered its dividend by ~45%, the deal structure will provide an estimated ~$7-8 per share in one-time, tax-free payment (in the form of DiscoveryWarner shares), equating to 4-5 years of dividend payment in lump-sum, according to StreetInsider.
New Street analyst Jonathan Chaplin also upgraded to a buy rating from neutral with a six-month target of $35, StreetInsider said.
The deal with Discovery will provide AT&T the much-needed cash to trim its $169 billion debt that ballooned by $21 billion in the March quarter alone. It will also help it focus on 5G, the next broadband frontier for telecom companies.
AT&T will receive $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt.