AT&T Stock Falls after Rating Downgrade

AT&T (T) stock is currently trending downward in today’s trading session. It’s down about 1% as of 11:52 AM ET. The stock fell after HSBC analyst Sunil Rajgopal downgraded its rating to a “hold” from a “buy.” However, HSBC increased its target price to $42 from $38.

According to The Fly, “The ‘evolving content business model’ and increasing competition leads the analyst to be more cautious on the pay-TV business and operators with greater exposure to content revenues. Producers are increasingly distributing their content directly to consumers rather than relying on the cable and satellite aggregators.” The report added, “The entry of ‘well-funded companies’ like Apple (AAPL) into content production and distribution with its low sticker price adds to the concerns.” The analyst also reduced his pay-TV customer estimates for AT&T to reflect a more cautious approach.

In the third quarter, AT&T lost 1.2 million pay-TV customers, mostly due to competition from over-the-top service providers such as Netflix and Amazon. In May 2020, AT&T’s WarnerMedia division plans to introduce its own online streaming video service called HBO Max priced at $14.99 per month. The service will offer 10,000 hours of content.

Meanwhile, HSBC lowered its rating for T-Mobile (TMUS) stock to a “hold” from a “buy” and gave it a target price of $86. HSBC decreased its target price for Sprint (S) stock to $4.1 from $4.5 and reiterated its “reduce” rating.

Most analysts increased AT&T’s target price after its third-quarter results

In the third quarter, AT&T reported revenue of $44.6 billion—down 2.5% YoY (year-over-year). The company reported noncore EPS of $0.94, up 4.4% YoY. Notably, Wall Street analysts expected the company to report adjusted EPS of $0.93 on total revenue of $45.0 billion.

On AT&T’s third-quarter earnings call, CEO Randall Stephenson highlighted the company’s three-year capital allocation plan. The program includes share repurchases, debt reduction, continued annual dividend growth, and a portfolio review.

Many analysts increased their target prices for AT&T after the company’s third-quarter financial results:

  • Morgan Stanley increased its target price from $37 to $42 and reiterated an “overweight” rating.
  • UBS raised its target price from $38 to $42 and reiterated a “buy” rating.
  • JPMorgan Chase raised its target price from $39 to $42 and reiterated an “overweight” rating.
  • Raymond James raised its target price from $40 to $45 and reiterated an “outperform” rating.
  • Suntrust Robinson raised its target price from $31 to $36 and reiterated a “hold” rating.
  • Goldman Sachs raised its target price from $32 to $36 and reiterated a “neutral” rating.
  • Credit Suisse raised its target price from $29 to $36 and reiterated a “neutral” rating.
  • Cowen raised its target price from $40 to $41 and reiterated an “outperform” rating.

Among the total 29 analysts covering AT&T, 13 recommend “buys,” 15 recommend “holds,” and the remaining one recommends a “sell.” On average, analysts expect the company’s stock price to touch $38.71 over the next 12 months, which reflects a potential downside of 1%. The highest target price estimate for AT&T is $47, while the lowest is $20.

Stock performance

On November 13, AT&T stock closed the trading day at $39.16, which represented a 46.1% increase from its 52-week low of $26.80. AT&T has risen around 37.2% year-to-date. Sprint and T-Mobile are up 4.1% and 22.6%, respectively, year-to-date.

To learn more, read AT&T’s 2020 Outlook: 5G and Wireless Are Key Drivers.