NewStreet Research Upgrades AT&T to Buy

Investing.com — NewStreet Research has upgraded its rating for AT&T (NYSE:T) stock to Buy, citing stronger-than-expected guidance, robust share repurchase plans, and a promising strategy for fiber expansion.

The firm has set a new price target of $32.50 for the end of 2026, indicating a potential upside of approximately 37% from current levels.

Updated Financial Outlook

AT&T provided updated guidance on Tuesday, showing acceleration in key financial metrics. Free cash flow (FCF) is now projected to grow from $16 billion to over $18 billion, surpassing previous expectations. EBITDA growth has also been revised upwards to 3% or more, compared to prior estimates of 2%+.

Additionally, the lower bound of AT&T’s 2024 EPS guidance has increased from $2.15 to $2.20.

Cash Projections

NewStreet anticipates AT&T will have $34 billion in excess cash over the next three years, with $20 billion allocated for share repurchases and $10 billion for acquisitions.

Analysts at NewStreet expressed surprise that the guidance is not better, given the higher EBITDA and FCF predictions, suggesting the possibility of conservative estimations or unanticipated cash uses.

Fiber Expansion Plans

Fiber expansion is a core element of AT&T’s strategy, aiming for 45 million locations by 2029, up from an earlier projection of 41 million. Although this is below NewStreet's expectation of 50 million, the company is recognized for its unexpected rollout pace.

Competitive Environment

The report also highlights a favorable competitive landscape in wireless, forecasting annual subscriber growth of about 1%, alongside steady margin expansions. These conditions might facilitate valuation multiple expansion, especially if AT&T continues shifting towards higher-multiple broadband assets.

Future Projections

NewStreet predicts AT&T will achieve $2.71 in FCF per share by 2027, substantially above the consensus estimate of $2.31. Based on a 10x multiple, this equates to annual returns of 15%, escalating to 25% at a 12x multiple.

Analysts affirm that this justifies an outright buy. They note that if the mobile market remains as benign as projected, multiples should expand. Furthermore, recognition of the shift towards higher-multiple broadband assets could drive even greater valuation increases.