AT&T plans to focus on its telecommunications business.
Timothy A. Clary/AFP via Getty Images
AT&T stock fell hard after the wireless communications giant said it was getting rid of its media assets and cutting its dividend. Now, Wall Street sees an opportunity.
The stock rose on Thursday and was moving higher again early Friday. Sentiment on Wall Street appears to be shifting: Two analysts upgraded the stock.
AT&T (ticker: T) shares rose 2.4% Thursday after three consecutive days of declines of 2% or greater to start the week. Shares were up another 1.4% in premarket trading Friday.
The end of selling pressure following the news about the deal, plus a broad rally for the market, explain the Thursday gains. The rating upgrades are behind the Friday move.
New Street Research analyst Jonathan Chaplin upgraded AT&T to Buy from Hold with a six month “tactical” price target of $35. Coming into Friday his old target price was $29 a share. He says the dividend cut and higher capital spending should create value for the company in the long run.
UBS analyst John Hodulik also upgraded AT&T to Buy from Hold, raising his price target to $35 a share from $32. He likes the new focus on the wireless business and says the balance of risks and potential rewards looks more positive following the recent declines.
Upgrades after big declines aren’t all that unusual, but the new calls still seem to differ from the consensus. AT&T isn’t a popular stock on Wall Street. About 31% of analysts covering the company rate shares at Buy, while the average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Stocks tend to sell off after dividend cuts and other negative surprises as existing shareholders admit that the reasons they bought the shares may no longer make sense. The selling usually stops when shares become attractive enough for a new group of investors.
For AT&T shares, the current price of less than $30 is attractive enough for two analysts. It remains to be seen if it is low enough for a new group of contrarian investors.
Coming into Friday trading, AT&T stock is up about 3% year to date, trailing behind comparable gains of the S&P 500 and Dow Jones Industrial Average.
Write to Al Root at [email protected]
