What to Look For in AT&T’s Analysts Day

The company has now closed on its DirecTV acquisition and it should have even more dividend coverage for its high-yield dividend as a result. While much was noted about the stock pulling back, there was a wave of analyst upgrades this summer, and the four-way pricing war may now be less of an issue with the huge satellite TV integration offering massive potential cost savings for the combined company.

Many on Wall Street think that finally closing the DirecTV deal will remove a lot of lingering questions, especially where the company’s big dividend is concerned. It is a good bet that the synergies created by the deal are being underestimated by Wall Street. And many analysts see upside to wireless margins, which were a positive earnings driver in the second quarter.

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Analysts pointed out that with the close of the DirecTV acquisition, the dividend payout will improve to 70% (from 96% as a standalone figure last year), providing a much more comfortable level for sustainable dividend growth going forward as the company will have a much safer margin for coverage.

Currently AT&T has a dividend that pays out an annualized $1.88, which breaks down to a yield of 5.5%.

As the meeting is approaching, most analysts have been hesitant to change their calls, taking the more prudent approach of hearing what AT&T has to say first before adjusting. At the same time, the calls that come after analyst day should not entirely be trusted. Take them with a grain of salt — the combined company will be something that analysts have not seen before and it may take up to a year for estimates to truly be accurate and in line.

A few recent calls from July on AT&T were:

• Macquarie has an Outperform rating and raised its price target to $39 from $38.
• Canaccord Genuity has a Hold rating and lifted its price target to $35 from $34.
• Goldman Sachs initiated coverage with a Neutral rating and a $37 price target.

Shares of AT&T were up 0.4% at $34.79 Tuesday morning. The stock has a consensus analyst price target of $36.98 and a 52-week trading range of $32.07 to $36.45.

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