The host of CNBC’s Mad Money, Jim Cramer, has repeatedly shared his views on AT&T (T) stock. On Monday, he stated that AT&T stock is worth holding despite the downgrade from MoffettNathanson analyst Craig Moffett.
Moffett downgraded the stock to “sell” from “neutral” with a target price of $30. The analyst is skeptical about the company achieving its 2020 and three-year goals. He also believes that AT&T’s wireless segment would need significant growth to offset weakness in other segments.
Jim Cramer’s views on AT&T stock
According to a December 9 CNBC report, Cramer noted, “If AT&T were trading in the $40s or even the mid-$50s, where Elliott believes it can go if the company hits its long-term targets, then the stock would be a sell here.” He continued, “But at $38, AT&T’s already trading like those estimates are unlikely. And, hey, if management can deliver, I see this stock going much, much higher.”
Cramer responded to the MoffettNathanson downgrade by saying, “Even if he’s right that it’s borderline impossible for AT&T to hit its forecasts for 2022, I don’t think any of the bulls are really banking on those numbers.” He added, “This is a forced turnaround play, meaning Elliott Management is forcing AT&T to get its act together.”
Cramer concluded, “Put it all together, I think Moffett’s missing the forest for the trees with this sell recommendation.” He continued, “If the company can’t make real progress toward its long-term guidance, I have to believe Elliott will come down on them like a ton of bricks and bring in a new team.”
According to FactSet, AT&T’s revenue is likely to reach $182.8 billion in fiscal 2022, about 7% more than the $170.8 billion the company reported in fiscal 2018.
Elliott Management’s stake in AT&T stock
In September, Elliott Management, a well-known hedge fund, revealed its $3.2 billion stake in AT&T. The activist investor also sent a letter to AT&T’s board of directors. Elliott believes that the telecom company would be worth more than $60 per share by 2021. To improve AT&T’s stock performance, the activist investor suggested a four-step restructuring plan in the letter:
- “Improved strategic focus” with the divestment of unnecessary assets like DIRECTV and Mexican wireless operations.
- “Significant operational improvements” with 300 basis points of EBITDA margin expansion by 2022 achieved through $5 billion in net cost reductions.
- A “formal capital allocation framework” with no additional material M&A to focus on share repurchases and dividends.
- “Enhanced leadership and oversight” by making management changes as well as the adoption of corporate governance best practices.
In October, conceding to the activist investor’s demands, AT&T agreed to pay off the debt arising from Time Warner’s acquisition and add two new board members. The telecom company also agreed to monetize about $10 billion of its non-core assets in 2020.
Financial performance in Q3
AT&T reported adjusted earnings per share of $0.94 in Q3 2019, while Wall Street analysts projected EPS of $0.93. The telecom company reported revenues of $44.6 billion in Q3 2019, lower than the Wall Street analyst consensus estimate of $45.0 billion.
In Q3 2019, AT&T lost 1.2 million pay-TV customers due to rising competition from over-the-top service operators like Netflix and Amazon Prime. However, the mobile carrier added 101,000 postpaid phone net customers and added 227,000 prepaid net customers. AT&T’s total postpaid customers fell 1.3% year-over-year to 75.2 million through September 30. The company reported a postpaid phone churn rate of 0.95% in the third quarter.
Of the 29 analysts providing recommendations on AT&T stock, 44.8% rated it as a “buy,” and 48.3% maintained a “hold” rating. Meanwhile, 6.9% of the analysts gave it a “sell” rating. AT&T stock closed at $38.04 on Monday, reflecting a potential upside of 2.6% to the analysts’ target price of $39.02 per share.
AT&T’s stock returns
AT&T stock fell 0.42% on December 9 and closed the trading day at $38.04. The stock is trading 4.2% below its 52-week high of $39.70 and 41.9% above its 52-week low of $26.80.
On Monday, AT&T closed 0.3% below its 20-day moving average and 0.1% below its 50-day moving average. It also traded 3.6% above its 100-day moving average.
AT&T’s 14-day relative strength index score of 50 indicates that it’s neither oversold nor overbought. On December 9, it closed near its middle Bollinger Band level of $38.17, which also suggests that it’s neutral.
As of December 9, AT&T stock was up 33.3% YTD (year-to-date). T-Mobile stock has risen 19.3%, while Sprint stock has fallen 7.2% YTD.
On December 9, AT&T’s market capitalization was $277.9 billion. On the other hand, peers T-Mobile and Sprint had market caps of $64.9 billion and $22.2 billion, respectively.
Please read AT&T Announces Price Hikes for DIRECTV, U-verse TV and AT&T Stock Price Higher Following Investor Update to learn more.