Benzinga | Dec 16, 2021 11:18AM EST

3 Reasons Morgan Stanley Just Upgraded AT&T

AT&T Inc. (NYSE:T) shares were trading higher Thursday after the company landed an analyst upgrade from a high-profile Wall Street firm.

The AT&T Analyst: Morgan Stanley analyst Simon Flannery upgraded AT&T from Equal-Weight to Overweight and cut his price target from $32 to $28.

Related Link: Is Now The Time To Buy These 6 Undervalued Communication Services Stocks?

The AT&T Thesis: Flannery said his upgrade was based on three important factors.

First, he said AT&T has a solid financial and operational outlook. Second, he said the stock has an attractive absolute and relative valuation. Finally, Flannery said AT&T has important near-term catalysts, the biggest of which is the closing of the merger of WarnerMedia with DISCOVERY COMMUNICATIONS INC. (NASDAQ:DISCA) (NASDAQ:DISCB) (NASDAQ:DISCK).

"We believe that recent stock price underperformance has created an attractive risk reward opportunity, while we see a number of catalysts to unlock value by mid-2022," Flannery wrote in the upgrade note.

AT&T will receive roughly $43 billion as part of the TimeWarner deal, and Flannery said the remaining AT&T business will be a more streamlined communications company.

Incredibly, AT&T shares are currently trading near multi-decade lows, and Flannery said the stock's valuation is now simply too attractive for investors to ignore.

The stock's poor performance is not reflective of AT&T's solid numbers in recent quarters, the analyst said. Last quarter, wireless service revenues were up 4.6%, and Flannery is projecting sequential EBITDA growth in the fourth quarter and low-single-digit revenue and EBITDA growth to continue over the next several years.

Benzinga's Take: AT&T is certainly not the type of investment that is going to generate life-changing returns or impress your friends on social media. But the stock likely has limited downside trading at just 6.9 times forward earnings, and its 8.8% dividend yield is extremely attractive for a blue chip investment like AT&T.