AT&T Inc shares was upgraded to Buy from Neutral by UBS analyst John C. Hodulik. Hodulik also hiked the price target to $35 from $32.
According to the analyst, AT&T’s decision to spin-off its streaming business with Discovery Communications could simplify the structure for AT&T. “We see a favorable risk-reward at the current valuation given a more simplified set of connectivity-based assets, lower dividend payout, better visibility into EBITDA growth and lower leverage,” Hodulik said.
Hodulik said that a goal of free cash flow of $20 billion is achievable by 2023. Interest costs will be $2 billion lower, according to the analyst.
The media asset merger with Discovery will lower AT&T’s dividend payout by around 45%. The deal structure could lead to $7 to $8 per share in a one-time tax-free payment via shares of DiscoveryWarner, which represents four to five years of lump-sum dividend payment, Hodulik said.