Has AT&T stock been punished enough? One analyst says the ‘bear case’ is mostly exhausted

AT&T shares declined roughly 14% in 2021 as the S&P 500 SPX, -0.41% increased 27%. That underperformance leaves Luebchow with the sense that the “downside risks are more limited” for the telecommunications stock. There are also some positives, including that AT&T could deliver the strongest service revenue growth in the wireless industry during 2022, he wrote.

Additionally, AT&T is expected to complete its shedding of WarnerMedia assets later this year. The part of AT&T that will remain trades at a roughly 1 to 2 times discount to Verizon Communications Inc. VZ, +2.11% and T-Mobile US Inc. TMUS, -5.04% shares on the basis of earnings before interest, taxes, depreciation and amortization (Ebitda), he said, “despite a prospective yield of ~6% that should be securely covered.”

Luebchow also sees “some optionality for share repurchases (or dividend raises)” over time as AT&T makes progress with its goals on free-cash-flow growth and leverage reduction.

Read: AT&T exceeds HBO Max subscriber outlook

Still, he isn’t ready to turn bullish on the name, arguing that there are still some challenging elements to AT&T’s story. For one, the company appears to be months behind Verizon in getting its 5G network ready for C-band spectrum, based on Luebchow’s conversations with infrastructure players. Additionally, the company has “the weakest mid-band spectrum portfolio,” which could impact its ability to drive net customer additions in the long run.

Shares of AT&T are up 0.6% in Friday afternoon trading. They’ve slipped about 3% over the past three months as the S&P 500 has increased nearly 7%.