Strategic investors are supposed to go where the money is. That probably sounds like it should always be the big opportunities like AI, gene-altering, bitcoin or space exploration. The real target is to get extra performance from the market. That doesn’t exactly sound like good old AT&T Inc. (NYSE: T). Well, that may be the case in 2025.
Wall Street strategists are projecting roughly 12% upside from the S&P 500 in 2025. Most analysts are calling for ATT to rise over 20% in 2025. Some analysts are calling for over 30% upside in 2025. And with nearly a 5% dividend as gravy on top, that’s an implied upside of nearly 40% after a very impressive 2024.
Be advised that all price targets and ratings are from the firms named specifically. Oggonomics does not have any formal ratings and price targets on AT&T or its rivals.
THE 2025 SETUP FOR AT&T
AT&T has some very unique opportunities and ongoing self-improvement issues at the start of 2025:
- Dirt cheap valuation of just over 10-times earnings
- rising free cash flows
- 4.9% dividend yield
- buying back stock
- paying down debt
- deleveraging a bloated balance sheet
- moving past the Salt Typhoon cyberattack
Several unique situations have come up for AT&T as well. It and rival Verizon have announced that the Salt Typhoon attacks have been purged from their networks. Its divestiture of DirecTV is underway, and WarnerMedia is no longer on its books. AT&T’s Investor Day in early December showed its plans to expand and accelerate their fiber deployments. The company also introduced its new buyback plan of $20 billion through 2027 after it reaches its 2.5 leverage target later in 2025. The company also plans to ramp up buybacks over time.
Most companies are using the effects of elections, higher interest rates, and even inflation to avoid longer-term targets. AT&T’s guidance looks consistent with its current operating momentum. Perhaps the only big concern is that AT&T had a total return of 44% in 2024. Wall Street analysts have already started leading into A&T for more upside in 2025.
At $22.50 now, AT&T was a $29 at the end of 2019 — and it was a $32 stock back in 2016.
Private equity firm TPG entered into a definitive agreement worth $7.6 billion (in payments out to 2029) to acquire AT&T’s 70% stake in DIRECTV announced on September 30, 2024. AT&T completed the spin-off of its interest in WarnerMedia in 2022 in a combination deal with Discovery.
WHAT WALL STREET THINKS
All in all, the analyst brigade has started leaning more positively into AT&T as 2024 was ending and at the start of 2025. More than 15 price target hikes have been issued since last summer. That was only just as the stock was starting to rise above a very narrow trading range.
RBC Capital Markets is the latest analyst upgrade. RBC’s prior Sector Perform rating was raised to Outperform on January 6, and its price target as raised to $26 from $22. RBC’s main focus was on its steady growth initiatives and the prospects for boosting shareholder. The yield and cheap valuation also stood out in the call.
Late in December, Bernstein’s Laurent Yoon (rating AT&T as Outperform) noted that the consolidation in the four decades since the breakup of the original AT&T has finally reached a “relatively stable oligopoly structure.” The current stat is where the members of the oligopoly have “roughly equal market shares but unequal market positions.
According to BofA’s report from December 18, AT&T has already laid the foundation for a strong 2025, and it remains the top pick among telecom stocks from BofA. AT&T has already shared its expectation for wireless service revenue and adjusted EBITDA growth at the high end of its 2-3% and 3-4% ranges (respectively) for 2025. And outside of DirecTV, the call is for 2025 free cash flow of more than $16 billion (inclusive of a $1.5 billion year/year increase in cash taxes under current legislation). Also excluding DirecTV, AT&T already set adjusted EPS guidance for 2025 in a $1.97 to $2.07 range. The firm expects that the DirecTV divestiture should close in the second half of 2025.
And Deutsche Bank sees AT&T continuing to focus its strategy of the last two years while Wall Street was questioning the sustainability of this performance. The firm sees AT&T as being uniquely positioned in the industry as it will have the largest Fiber-to-the-premises footprint in the US in five years, rising to over 50 million points from about 29 million in 2024. The $20 billion earmarked for buybacks after lowering its leverage only further demonstrating management’s confidence.
More analyst summary calls (including some above) have been shown covering reports in the last six weeks:
- AT&T was reiterated as Buy and its price target was raised to $30 from $25 at UBS on December 19.
- UBS reiterated its Buy rating on AT&T on December 19, also raising its target to $30 from $25.
- BofA reiterated its Buy rating with a $28 price objective on December 18. .
- Morgan Stanley raised its rating to Overweight from Equal-Weight and raised its target to $28 from $19 on December 16.
- Oppenheimer initiated coverage as Outperform on December 10, with a $28 target price.
- Goldman Sachs reiterated its Buy rating and raised its target to $28 from $25 on December 5.
- Deutsche Bank reiterated its Buy rating and raised its $27 prior target to $28 on December 5.
- JPMorgan also has an Overweight rating on AT&T and counts it as the top pick in the sector. Its price target was raised to $28 from $25 on December 4.
- Citigroup reiterated its Buy rating and raised its target to $24 from $21 on November 27.
BUT WAIT, THERE IS ANOTHER…
And if investors feel that chasing AT&T at this point after a strong recover year, there is always Verizon Communications, Inc. (NYSE: VZ). Oggonomics conducted a similar review of Verizon versus peers back in December because Verizon’s shares were up only 14% YTD at that time and an even higher dividend.
At the present time, Verizon shares are down almost 8% from a month ago and the stock is down over 2% from a year ago. And at this time, AT&T is up 29% versus a year ago and it is down about 5.5% from a month ago.
ARE CREDIT ENHANCEMENTS COMING?
AT&T is rated as investment grade at the major credit ratings agencies. That said, there may be room for “credit enhancements” as AT&T pays down its debt. All three agencies have a stable outlook, but the ratings are as follows:
- Moody’s (Baa2)
- S&P (BBB)
- Fitch (BBB+)
DISCLAIMER
Oggonomics does not maintain any formal price targets on AT&T or any companies mentioned in this report. The ratings and targets mentioned above have been assigned to each firm responsible for those call. This is not an internal recommendation to buy AT&T or Verizon being issued by Oggonomics, nor is it a recommendation to sell any of its competitors. All investing decisions are the responsibility of each investor and those decisions should be made along with a financial advisor.
