AT&T will divest its WarnerMedia unit next year.

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AT&T stock gained on Thursday following an upgrade to Overweight by Morgan Stanley analysts, who say the stock’s recent underperformance has created an attractive opportunity, and that there are factors that could lift the shares of the telecom giant in the short term.

The analysts lowered their target for the stock price to $28 from $32, even as the bank took a more positive view of the telecom sector. Shares were up by 4.4% to $23.14 in mid morning. Previously, Morgan Stanley had rated the stock at Equal-Weight.

“AT&T is currently sitting near multi- decade lows, having fallen ~22% YTD,” said Morgan Stanley analyst Simon Flannery in a research note. “At these levels we believe the stock is discounting an overly negative outlook.”

In a separate note, the bank raised its rating on the industry to In-Line from Cautious. “The Telecom Services group now offers the highest dividend yield among all 24 industry groups in the broader market, while also looking attractively valued on a variety of other measures,” it said.

Flannery highlighted the planned divestiture of AT&T’s content unit WarnerMedia to Discovery as a move that will unlock value.

The transaction, which is expected to close by mid-2022, will leave AT&T with a more clearly focused communications business, consisting of the Mobility, Consumer Wireline, and Business Wireline subsegments. All those areas are growing or have solid prospects for growth , Flannery said.

After the divestiture, pro forma revenue is expected to be $155.7 billion in 2022, which reflects 7% year-over-year growth

Flannery also pointed to the telecom giant’s solid financial and operating performance this year as a reason for the upgrade. “Wireless service revenues grew 4.6% Y/Y last quarter driven by industry leading postpaid phone adds,” he said.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com

Source: finance.yahoo.com