AT&T (NYSE:T) rose over 1.7% ahead of the market open on Friday after Oppenheimer analysts released new coverage on the stock, upgrading it to Outperform from Perform with a price target of $21.
Analysts said AT&T has lagged behind the market and industry peers in recent years as the company faced challenges during its transformation to establish itself as a dedicated connectivity provider.
“We believe these headwinds have moved to the rearview, and the stock is set to benefit from a number of tailwinds” including significant improvements to network capacity and coverage, both in wireless and wireline segments, “which is driving ARPU growth,” they noted.
“Related to this are improved broadband subscriber and revenue trends helped by fiber builds and now Fixed Wireless,” Oppenheimer wrote in the note.
Additional positive factors include the potential merger of DirecTV with Dish, a focus on expense reduction improving free cash flow and the balance sheet, and an appealing valuation with 15% free cash flow (FCF) and 7% dividend yields.
The price target of $21 is derived from a 2025 revenue multiple of 2.2x and is substantiated by our discounted cash flow (DCF) model, which considers a Weighted Average Cost of Capital (WACC) of 8.9% and a long-term growth rate of 0.5%.
Key risks to the price target noted by Oppenheimer are “increasing competition,” and pressures on margins and FCF growth due to pricing or market share.
Other potential headwinds include “intense broadband landscape with competitive fiber builds, cable DOCSIS 4.0 upgrades, and FWA; and lead cable exposure.”