AT&T’s WarnerMedia plans to release its movies simultaneously in theaters and via HBO Max this year.
David Paul Morris/Bloomberg
AT&T stock gained ground despite a slide in the broader market after Raymond James said the telecom giant is poised for a better year.
AT&T (ticker: T) shares dropped roughly 25% in 2020. Analyst Frank Louthan turned cautious on the shares back in mid-March, when Covid-19 lockdowns were just coming into effect. He warned that it was unknown how the pandemic would affect the company, especially the WarnerMedia unit, and said AT&T’s complexity was a disadvantage vis-à-vis Verizon Communications (VZ) in an uncertain environment.
Now, with “most of this bad news…baked in,” the picture is improving, he said. He raised his rating on the stock to Outperform from Market Perform, setting a target of $32 for the share price. AT&T was up 1.1% to $29.09 in midday trading, while the S&P 500 was down 2.3%.
“WarnerMedia is not yet back to its full potential, and we believe there is more that can go right during the next 12 months than can get worse for AT&T,” Louthan wrote in a research note, although other analysts are less optimistic.
He said WarnerMedia is doing the right thing by releasing its films simultaneously in theaters and on HBO Max this year, given how badly Covid has hurt attendance at the movies. Industry insiders may not want to admit to themselves how much this habit has eroded, and how much demand for direct-to-consumer releases has grown, but in his opinion, the answer is obvious, leaving only the question of how much to charge for in-home views.
Consumers’ desire to watch shows at home “gives AT&T one thing that is a critical factor for the stock: subscriber growth,” Louthan wrote. “With HBO Max finally on the dominant streaming hardware platforms, we believe the streaming service will begin to see significant subscriber gains, and the stock should react well to these gains.”
In addition, he said, worries about AT&T’s balance sheet—and the fear that its debt could prompt it to cut its dividend—are overblown. The company’s leverage isn’t far above its historical average, while the success of HBO Max and continuing sales of less important businesses should easily allow the company to generate more than sufficient free cash flow, he said.
Write to Teresa Rivas at [email protected]
