AT&T stock (T) continued its momentum and gained more than 4% in the last five trading days. The stock hasn’t slowed down despite rallying more than 28% this year.
Upside potential in AT&T stock
On Monday, Citigroup analyst Michael Rollins raised its target price on AT&T stock to $42 from $37. Citigroup kept its “buy” rating. According to a MarketWatch report, “his raised target was a result of the opportunities AT&T has to reduce debt, improve operating segments, further monetize non-core assets and improve returns to shareholders.” On the same day, Wells Fargo analyst Jennifer Fritzsche reiterated her “market perform” rating. On Tuesday, Scotiabank also raised its target price on AT&T stock from $33 to $40.
On Monday, Paul Singer’s Elliott Management revealed that it holds a $3.2 billion stake in the telecom company. The stock rose about 1.49% on Monday following the news of Elliott Management’s stake.
Singer is a billionaire activist investor. He acquires a stake in companies that are deeply undervalued. Singer also pushes for board seats once he takes a stake in a company. After that, he asks for changes to the management, capital allocation, or business strategy.
On Monday, Elliott Management sent a letter to AT&T’s board of directors outlining the plan to improve shareholder value. In the letter, Elliott Management stated that AT&T stock is deeply undervalued. Elliott Management expects the stock to reach $60+ per share by the end of 2021. The hedge fund urged AT&T to divest its non-core assets, which includes DIRECTV and the Mexican wireless business.
To learn more about Elliott Management’s suggested changes and AT&T’s response, read AT&T Responds to Elliott Management’s Letter and AT&T Stock Rose after Elliott Management Disclosed Stake.
The letter comes after AT&T announced changes to its leadership team last week.
After falling in 2018, AT&T stock has made a remarkable recovery this year. T-Mobile and Sprint have returned 24.4% and 18.7%, respectively, year-to-date.
Currently, AT&T stock is trading at $36.79, which is almost 7.3% and 16.1% above its 50-day and 200-day moving average levels, respectively. AT&T is trading almost 3.5% below its 52-week high of $38.14 it saw on Monday. The stock rose 37.3% from its 52-week low of $26.80 on December 26, 2018.
The recent rally in AT&T pushed the stock into the overbought zone. The 14-day RSI (relative strength index) score was 73. An RSI level of more than 70 suggests that the stock is in the overbought territory and might see a reversal.
Analysts’ recommendations on AT&T stock
The analysts polled by Reuters have a consensus “buy” recommendation on AT&T stock. About 53.6% of the 28 analysts covering AT&T have a bullish stance. Among the analysts, nearly 42.9% recommend a “hold,” while 3.5% have a bearish view. Analysts gave AT&T stock a mean target price of $35.76, which implied an estimated downside of almost 2.8% for the next 12 months.
Forward PE valuation
AT&T stock is trading at a one-year forward PE ratio of 10.20x. AT&T’s top peers have high valuation multiples. T-Mobile and Verizon’s one-year forward PE ratios are 17.18x and 12.07x, respectively.
To learn about AT&T’s dividend yield, read What You Should Know about AT&T’s Dividend Profile.