AT&T has completed the spinoff of WarnerMedia.
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AT&T wrapped up its WarnerMedia spinoff late last week, and the stock was rising on Monday.
The stock jumped 8%, to $19.67.
AT&T (ticker: T) in February decided to structure WarnerMedia’s divestiture as a spinoff instead of a split-off, or exchange. A split-off would have given AT&T holders the option of exchanging their holdings for shares in the new publicly traded Warner Bros. Discovery. The current spinoff gives shareholders a part of the combined company for each share of AT&T they held at close.
The telecom giant had announced the $43 billion transaction with Discovery (DISCA) about a year ago. The sale was part of AT&T’s strategy to create a more focused communications business consisting of just its mobility, consumer wireline, and business wireline subsegments.
“With the close of this transaction, we expect to invest at record levels in our growth areas of 5G and fiber, where we have strong momentum, while we work to become America’s best broadband company,” said AT&T CEO John Stankey. “At the same time, we’ll sharpen our focus on returns to shareholders.”
At close, AT&T received $40.4 billion in cash and WarnerMedia’s retention of certain debt, according to a press release. Shareholders of AT&T received a little more than 0.24 shares of the new Warner Bros. Discovery for each share of AT&T they held.
“We expect to invest for growth, strengthen our balance sheet and reduce our debt, all while continuing to pay an attractive dividend that puts us among the top dividend paying stocks in America,” Stankey said.
in a note today, BofA Securities analyst David W. Barden estimated that the new dividend yield should be about 4.4% if the stock reaches the firm’s $25 price target. “With the deal now closed, the dividend reset, and the investor base stabilizing, we believe the stage is set for investors to begin focusing on AT&T’s improving fundamentals,” Barden writes.
On the news, J.P. Morgan analyst Philip Cusick moved to an Overweight rating on the company’s stock from having no rating earlier. Cusick said as long as the company can continue to deliver on its guidance and financial target, the stock remains one that is defensive and inexpensive with a high dividend yield.
AT&T is set to report its first-quarter earnings on April 21 before the market opens. Analysts tracked by FactSet forecast adjusted earnings per share of 75 cents on revenue of $38.26 billion for the quarter ending March.
But analyst Gregory Williams of Cowen doesn’t see earnings as a catalyst and rates the stock at Market Perform. He expects AT&T’s quarterly results to be in line with expectations and asks investors to wait for proof points on execution.
“We expect more of a “wait and see” sentiment as we move beyond the…close of the WarnerMedia transaction and as investors get more comfortable [with AT&T] executing on its newly unveiled targets in challenging markets across the board,” he said, noting competition in the 5G space.
On average, the stock is rated at Hold on FactSet with a $26.70 price target. Cusick has a December 2022 price target of $22.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com
Source: finance.yahoo.com