A vocal former bear on AT&T Inc.’s stock now feels slightly less pessimistic about the name following an extended slide in the telecommunications company’s shares.
MoffettNathanson analyst Craig Moffett upgraded AT&T’s stock T,
The stock is up 1.2% in Thursday trading.
AT&T’s relative price-to-earnings ratio is “as cheap as it has ever been,” Moffett wrote, one reason why some bulls see the name as “an interesting contrarian long.” Even though the company will be cutting its dividend in conjunction with its plans to spin off its WarnerMedia business, bulls note the company should still have a relatively attractive dividend yield after that transaction takes place.
Moffett, however, is not ready to jump into the bull camp just yet. “We’re partial to contrarian longs, but this doesn’t feel like one to us,” he wrote. “We do conclude, however, that the bloodletting has been enough to move to a neutral posture.”
He continues to have concerns about AT&T’s debt burden, especially with a new mid-band spectrum auction kicking off. Moffett sees AT&T behind T-Mobile US Inc. TMUS,
When it comes to the auction, Moffett sees “no good outcomes here” since AT&T will either be adding to its debt by paying heavily for additional spectrum or cooling its spending, only to further its “spectrum disadvantage.”
“The telecom business has historically been a sub-GDP growth industry—something that we don’t expect to change in the era of 5G—and AT&T is likely to be a share loser in that sub-GDP growth industry,” he wrote.
Moffett added that given the backdrop, “the market has understandably greeted AT&T’s transformation back to its telecom roots with some skepticism.”
AT&T shares have declined 5.8% year to date, while the SPDR Communication Services Select Sector exchange-traded fund XLC,