Why UBS Upgraded AT&T Stock



UBS’s recommendations

On September 21, UBS upgraded AT&T (T) stock from a “neutral” to a “buy” and increased its target price from $33 to $38. The new target price represents a 13.6% rise from Thursday’s closing price of $33.44.

UBS analyst (T)+to+Buy;+Trading+Near+All-Time+Low+Valuations/14630476.html">John Hodulik stated, “We believe the stock is trading near all-time low valuations (and the widest gap to Verizon) given a mix of EBITDA declines, concerns over the debt load and secular issues impacting the space. The Time Warner transaction and accounting changes have compounded these issues, leading to a loss of visibility for investors.”

He added, “Our work suggests the company will return to EBITDA growth in 2H18 after a 6% decline in 1H18 given growth in Wireless & WarnerMedia and slower declines in Entertainment.”

Year-to-date, AT&T stock has fallen 14%. It has returned 1% in the trailing-one-month period and -13% in the trailing-12-month period. By comparison, Verizon (VZ) and T-Mobile (TMUS) have seen their stocks rise 9% and 8.8%, respectively, in the trailing-12-month period. Sprint (S) stock has fallen 19.8% in the trailing-12-month period.

Analysts’ expectations

For 2018, analysts are expecting AT&T to post revenue of $172.9 billion, which represents a growth of 7.5% from $160.8 billion in 2017. For the same period, its adjusted EPS is expected to rise 14.8%.

AT&T’s valuation metrics

AT&T is currently trading at a PE multiple of ~18.1x, which is less than T-Mobile’s at ~24.0x and more than Verizon’s at ~15.7x. In 2018, AT&T’s PE multiple is anticipated to be ~9.6x. For 2019, it’s expected to be ~9.2x.

AT&T’s adjusted EPS rose ~15.2% year-over-year to $0.91 in the second quarter. That was ~7.1% more than what Wall Street analysts had anticipated.

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