Citi sees better days for telecom stocks, upgrades Verizon and AT&T
Citi sees better days for telecom stocks, upgrades Verizon (VZ) and AT&T (T)
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Citi analysts see a more favorable investment outlook for large-cap telecom stocks. As a result, their analysts upgraded ratings for both Verizon (NYSE:VZ) and AT&T (NYSE:T) stocks to Buy.
AT&T price target remains unchanged at $17 per share while Verizon stock target is lifted by $1 to $40 per share.
The analysts note that the competitive environment in the wireless industry is showing signs of stabilization, which should contribute to improved operational performance.
“We see a few factors that point towards a stabilizing wireless competitive landscape. Cable share gains have not been a zero-sum game. AT&T and Verizon have recently introduced another round of targeted back book pricing increases, while T-Mobile introduced two phases of moderate front-book changes that suggest the national MNO détente continues. Also, longer device holding periods are reducing upgrade costs & stabilizing churn,” they wrote in a note.
More precisely, better forward free cash flow (FCF) is expected to help lower net debt leverage and support dividend payouts. The dividend yields for both AT&T and Verizon are currently at a high of 7.8%.
“Current valuations may be discounting more than full-remediation cost scenarios for lead, while anticipated updates could help to level and possibly narrow the perceived risk,” the analysts added.
T-Mobile US (NASDAQ:TMUS) remains a Top Pick at Citi.
“Potentially positive catalysts may include helpful updates on lead exposure and further evidence of a stabilizing wireless competitive landscape. We are also taking a positive view on Telcos over Cable within large-cap communications,” the analysts concluded.
Both Verizon and AT&T shares are up 1.6% in premarket Tuesday.
