Citi has expressed continued confidence in AT&T (NYSE: T), maintaining a Buy rating and a $24.00 price target for the telecom giant.
The firm's optimism is based on AT&T's trajectory towards achieving its financial goals for 2024 and its net debt leverage target by mid-2025.
Citi anticipates that AT&T will meet a leverage ratio of approximately 2.5 times, which is expected to provide the company with greater capital allocation flexibility.
Citi's outlook comes ahead of AT&T's third-quarter results, with expectations set for solid financial performance and wireless volume growth that aligns with projections. However, the firm noted that the growth in fiber net additions might be impacted by a month-long work stoppage. Despite this, the overall forecast remains positive.
The recent divestiture of AT&T's DirecTV (DTV) stake is also a focal point for investors, as Citi predicts a shift in attention towards the company's free cash flow (FCF) without the influence of DTV. The firm estimates that AT&T could sustain an ex-DTV FCF yield of at least around 10% for the year 2025.
In other recent news, AT&T has been the focus of various financial and corporate developments. The company's networks were recently infiltrated by a Chinese hacking group known as "Salt Typhoon," compromising systems used for court-authorized wiretapping.
On the financial front, AT&T received a price target boost to $24 from BofA Securities, reflecting the company's consistent performance and streamlined corporate structure. RBC Capital also raised its price target for AT&T to $22, despite timing adjustments in Free Cash Flow.
In addition, AT&T declared dividends for its common and preferred shares, with payments scheduled for November 1, 2024. The company is also reportedly in discussions with TPG Inc to merge their DirecTV satellite service with Dish, a move that could potentially reshape the satellite-TV landscape. In the midst of these developments, AT&T is facing a labor dispute with the Communications Workers of America, leading to an ongoing strike involving over 17,000 employees.
InvestingPro Insights
AT&T's financial metrics and recent performance align well with Citi's optimistic outlook. According to InvestingPro data, AT&T boasts a market capitalization of $157.75 billion and a P/E ratio of 14.56, suggesting a relatively attractive valuation. The company's revenue for the last twelve months as of Q2 2024 stands at $122.2 billion, with a solid gross profit margin of 59.61%.
InvestingPro Tips highlight AT&T's strengths in line with Citi's analysis. The company is noted as a "Prominent player in the Diversified Telecommunication Services industry," which supports its market position. Additionally, AT&T "Has maintained dividend payments for 41 consecutive years," demonstrating a commitment to shareholder returns that aligns with Citi's positive view on the company's capital allocation flexibility.
The stock's recent performance has been impressive, with InvestingPro data showing a 55.58% price total return over the past year and a 31.29% return over the last six months. This strong momentum is reflected in the InvestingPro Tip noting a "High return over the last year" and that the stock is "Trading near 52-week high."
For investors seeking more comprehensive insights, InvestingPro offers 11 additional tips for AT&T, providing a deeper analysis of the company's financial health and market position.
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