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The Curious Case of AT&T Makes Street Cautious
Stock Analysis & Ideas

The Curious Case of AT&T Makes Street Cautious

AT&T (T) is a veteran in the telecommunications market, and has been in the business for almost four decades. It has a competitive advantage over peers through edge computing services that enable businesses to channel application-specific traffic to where it’s most effective —in the cloud, the network, or on their premises. In this regard, key partnerships have been instrumental in making the business grow.

Earlier this year, AT&T expanded its long-documented partnership with Google (GOOGL) Cloud to offer end-to-end solutions for enhanced customer experiences. The solutions are expected to help businesses manage the massive amount of data generated from increased 5G deployments, and better utilize edge connections and edge computing capabilities. Then, in June, AT&T partnered with Microsoft (MSFT) to shift its 5G mobile network to the latter’s cloud, to improve productivity and enable large-scale network services delivery.

Furthermore, earlier this week, AT&T partnered with telecom provider Frontier Communications to provide fiber-optic connectivity to markets where AT&T does not own a fiber network. In yet another partnership announcement this week, the company entered a five-year deal with Ericsson (ERIC) to expand its 5G network and C-band spectrum.

Another notable fundamental to take stock of is the paradigm shift that AT&T is undergoing to core telecom operations and the steps it is taking in that direction. This move was influenced by several factors triggering the tremendous growth prospects of the telecom operations sector.

One of the possible drivers behind AT&T’s move is the $2 trillion infrastructure investment plan by President Biden. A whopping $100 billion has been set aside as part of this investment plan for expanding broadband access in the U.S., in an attempt to reduce dependence on China.

However, the wireless market has become saturated, and the spectrum crunch adds to the issues in the U.S. telecom industry. This is weighing on AT&T’s revenues and margins as well.

Additionally, AT&T is facing an alarming decline in linear TV subscribers and legacy services. Revenues from high-speed Internet are also diminishing due to the shelving of the company’s legacy Digital Subscriber Line (DSL). Moreover, high costs related to delivering TV content and programming are denting the margins.

The biggest challenge for AT&T is its precarious financial health. The balance sheet is significantly leveraged, with $11.87 billion of cash and cash equivalents against $155.68 billion of long-term debt at the end of the second quarter of 2021.

On October 10, Barclays analyst Kannan Venkateshwar reiterated a Hold rating on AT&T. He also lowered the price target to $30 from $34, stating that Discovery’s (DISCA) dismal equity performance is an overhang on AT&T’s near-term prospects. For context, earlier this year, AT&T recently inked an agreement to divest its media operations segment to Discovery for $130 billion.

A few days before Venkateshwar’s report, MoffettNathanson analyst Craig Moffett upgraded the stock to a Hold from Sell, and raised the price target to $28 from $23, based solely on cheap valuations. Other than the valuation, Moffett did not seem too positive about AT&T. (See Analysts’ Top Stocks on TipRanks)

The analyst consensus also resonates with the analysts’ cautious stance on AT&T, with a Hold rating, based on 4 Buys, 7 Holds, and 1 Sell. The average AT&T price target of $31.3 indicates an upside potential of 21.88%.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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