Summary
- AT&T's stock fell and was due for a short-term correction.
- Strong prospects ahead with streaming services growth.
- Downside price target requires zero revenue growth in the next five years.
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AT&T’s (T) nearly 4% drop on an analyst downgrading is irrational. According to Tipranks, this analyst is ranked #2,567 out of 5,689 analysts (1-year period). The telecom giant has two major catalysts ahead that will keep its stock price headed past $40. First, interest rates are under pressure, so the stock’s 5.15% dividend yield will attract income investors. Second, WarnerMedia will perform even better, allowing the company to apply the cash flow to pay down its debt. Why else should investors buy the dip in AT&T's stock?
VZ) trades at a forward P/E of 12 times, ahead of AT&T, albeit its P/E is lower. Still, AT&T is committed to its dividend and has a higher yield than most of its peers. SA Essential readers may compare AT&T to their peers here.
Do Not Bother Selling AT&T's Stock
For argument’s sake, the downgrade may have some merit. AT&T's shares enjoyed a rally for much of the year. Investors are up 25% excluding the dividends, so at the $40 level, a technical pullback is expected. Long-time shareholders may consider selling some shares to lock in profits. This strategy requires investors believing the stock does, in fact, pull back and will turn higher after the selling pressure ends. One problem with relying on the analyst downgrade to justify the selling is his track record.
Source: Tipranks
Craig Moffett downgraded AT&T's stock in 2018 when shares were around $32. Conversely, on my marketplace service, DIY Value Investing, we happily bet that AT&T's stock was a great dividend-income growth investment. That call paid off last year.
So, selling AT&T's shares, even some of them, creates a capital gain and could run the risk of investors missing out if the stock rebounds tomorrow. Fundamentally, the company has a strong online streaming strategy, consistent cash flow growth from its mobile division, and is poised to beat investor expectations with WarnerMedia.
