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AT&T’s Bear Case Largely Has Played Out. The Stock Has ‘Limited’ Downside Risks.

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The AT&T logo is displayed on the shirt of an employee at an AT&T store.
Andrew Harrer/Bloomberg

Shares of AT&T were rising Friday after receiving an upgrade from Wells Fargo on limited downside risks.

Analyst Eric Luebchow upgraded the stock to Equal Weight from Underweight, and raised his price target to $27 from $26.

“With shares down -11.9% in 2021 (vs. S&P of +27.0%), we think downside risks are more limited, particularly with our expectation for sustained strength in its core wireless business that should deliver industry-leading service revenue growth in 2022,” he wrote in a research note on Friday.

A T &T’s (ticker: T) wireless service revenue will grow by about 3.8% in 2022 — ahead of rivals T-Mobile ( TMUS ) and Verizon Communications ( VZ ), Luebchow predicted. The company could deliver around 2.3 million postpaid phone net adds, and take around 26% of industry gross adds, he said, even as overall adds slow across the industry.

Telecommunications and media giant AT&T said Wednesday that it added a net 1.3 million postpaids in the fourth quarter, above the consensus call for 968,000.

Luebchow also said he expects free cash flow to increase by more than 10% through 2025.

AT&T agreed last May to merge its WarnerMedia business, which includes HBO, CNN and TBS channels, with Discovery and its TLC and HGTV channels.The European Commission approved Discovery ‘s merger with WarnerMedia earlier this week.

The analyst acknowledged the company was still navigating significant headwinds that prevented him from upgrading the stock to Overweight. He believes AT&T is at least six months behind Verizon in preparing its 5G network for C-band, and two to three years behind T-Mobile. While AT&T is slated to benefit from some churn as T-Mobile shuts down the Sprint 3G and 4G network, that churn is likely to improve in 2023, he said.

“We do have some concerns on sustainability of net add performance longer-term,” Luebchow wrote.

The company added roughly 270,000 fiber subscribers last quarter, below the Wall Street consensus forecast of 302,000 and less than the third-quarter figure of 289,000 fiber subscribers.

Shares of AT&T were up 2.5% to $26.23 on Friday.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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