Analysts Keep Upgrading AT&T

Oppenheimer reiterated an Outperform rating and raised its price target to $40 from $36. The reasoning behind this was that between the Mexican expansion, DirecTV synergies and Project Agile, Oppenheimer believes that there are multiple avenues for the company to improve earnings and free cash flow.

The firm lowered its second-quarter estimates for wireline and wireless revenue and earnings per share (EPS) by three cents. For 2016, the firm raised its revenue and synergies forecast for T/DTV pro forma and raised its EPS by four cents to $2.59.

The firm believes that Project Agile will improve costs by enabling commoditized network equipment and also shifting customer service costs toward self-serve. Eventually, Oppenheimer expects AT&T to shut down its TDM-based network. The firm also estimates that Agile could lead to $3 billion of cost savings by 2018.

AT&T plans to invest $3 billion for its network expansion in Mexico, in addition to the $4.4 billion it spent to acquire lusacell and Nextel. The company is aiming to cover 100 million people by the end of 2018.

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Credit Suisse continues to believe AT&T has catalysts that could drive appreciation in 2015. The catalysts at AT&T involve its transaction with DirecTV and increased guidance for synergies. In addition to this, the future for Mexico looks bright but may take some time to ramp up. AT&T was rated Outperform with a price target of $38 and Credit Suisse.

The firm explained AT&T’s position in its report:

We now see this (DIRECTV) as a mild catalyst for the stock given the increase in concern. Additionally, we believe there could be further upside to the recently raised synergy guidance of $2.5 billion. While the current estimate does not include revenue synergies, we also see the potential for upside from quicker attrition from U-verse to DirecTV, which will have lower content costs until current contracts expire. We remain comfortable the dividend payout ratio will return to normal levels. Recall, CapEx should decline $3 billion in 2015 compared to 2014. Additionally, this should drive trailing operating expense savings, likely in the 20-30% range, in our opinion.

Separately, Jefferies believes that closing the DirecTV deal will remove a lot of lingering questions, especially where the company’s big dividend is concerned. The firm also believes that the synergies created by the deal are being underestimated by Wall Street, and Jefferies sees upside to wireless margins. The analysts also think the combined entity should be trading at a higher multiple than currently being applied on a pro forma basis.

The stock was raised to Buy from Neutral and the price target was raised to $42.00 from $34.00 at UBS. Also Barclays raised its rating to Overweight and the price target was raised to $39.00 from $34.00.

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A couple of other analysts had recent positive calls on AT&T:

• JPMorgan upgraded the company to an Overweight rating from Neutral and raised the price target to $40 from $35.
• Jefferies reiterated a Positive rating and increased the price target to $40 from $39.

The stock has consensus analyst price target of $35.78, and the highest price target from analysts is $42.

Shares of AT&T were relatively flat at $35.46 on Wednesday afternoon. The stock has a 52-week trading range of $32.07 to $37.48.