Is it worth investing in AT&T amid the current risks?
Summing up the results of 2021, we can say that the shares of the most prominent telecom operator, AT &T (T), go just awful.
The shares lagged behind the market as a whole, even despite the company’s attempts to regain investor confidence through deep restructuring. AT&T ended Tuesday’s trading at $24.47, having dropped almost 17% this year, while the benchmark S&P 500 has gained 22% over this period. AT&T’s losses are almost twice that of its closest competitor, Verizon Communications (VZ).
One of the side effects of the sell-off of T shares was a sharp jump in the dividend yield, which is currently close to 9%. Hints that the markets are afraid of a sharp reduction in payments. The stock collapse accelerated against the background of the publication of fresh management forecasts. According to this, the growth of the wireless communications division will slow down next year after a very successful 2021.
The warning came after AT&T delivered its most robust quarterly report in October over a decade. The publication proved the success of the strategy of CEO John Stankey, who is trying to return the company’s focus to the wireless and broadband segments, in which it became famous for its work.
The Dallas-based company is undergoing a massive restructuring involving the disposal of media assets; the new and more compact AT&T should focus on telecommunications. The main element of this strategy will be allocating the media assets of AT&T and Discovery (DISCA) into a new public company. However, this step (which should be next year) can hit the company’s dividend payments, which currently amount to $0.56 per share quarterly.
The annual dividend yield of the company’s shares is almost 9%, which is both the highest indicator among the “blue chips” and a reflection of this risk.
AT &T shares and their fair value of $33.23 imply a 37% growth potential. Attractive risk-to-profit ratio Last week, Morgan Stanley analysts upgraded AT&T’s rating from neutral to the “better market” category but at the same time lowered the target level of the stock from $32 to $28.
The new target is still more than 14% above Tuesday’s mark. Analysts noted: “We believe that the recent weakness in stocks has formed an attractive risk-return ratio; there are several catalysts that will reveal the “value” of the company by mid-2022.” “We consider AT&T’s communications division undervalued, and its reassessment will be necessary as the situation around the WarnerMedia/Discovery deal becomes clearer.”
Barclays analysts also upgraded AT&T’s rating from neutral to the “better market” category, saying telecom shares. Their target level for the stock is $30: For some time, we have noted the relative investment attractiveness of AT&T but refrained from adjusting the rating due to the expected consequences of the Warner Media deal and uncertainty in the competitive environment.
Nevertheless, the timing is increasingly consistent with current opportunities due to such catalysts as the upcoming publication of forecasts of telecommunications companies for 2022 and a potential decision on the structure of the Warner Media deal.
To sum up, AT&T remains a risky investment. Still, a successful restructuring will allow management to focus on the telecommunications segment and the opportunities as 5G technology. In our opinion, AT&T is suitable for investors willing to take risks. It is also worth remembering that its dividend payments were under threat.
