AT&T Inc. (NYSE:T) stock fell 1% (As on Oct 8, 12:36:04 AM UTC-4, Source: Google Finance) though MoffettNathanson upgraded the legacy telecommunications giant to Neutral from Underperform and lifted the $23 price target to $28. The consensus target is up at $31.45. The analyst wrote that “AT&T’s valuation, at last, more appropriately reflects its prospects.” AT&T’s relative price-to-earnings ratio is “as cheap as it has ever been,” Moffett wrote, one reason why some bulls see the name as “an interesting contrarian long.” Even though the company will be cutting its dividend in conjunction with its plans to spin off its WarnerMedia business, bulls note the company should still have a relatively attractive dividend yield after that transaction takes place. Moffett, however, is not ready to jump into the bull camp just yet. “We’re partial to contrarian longs, but this doesn’t feel like one to us,” he wrote. “We do conclude, however, that the bloodletting has been enough to move to a neutral posture.” He continues to have concerns about AT&T’s debt burden, especially with a new mid-band spectrum auction kicking off. Moffett sees AT&T behind T-Mobile US Inc. and Verizon Communications Inc. in terms of its spectrum positioning, which is notable since the company is reorienting its story back around the wireless business. The company is expected to spend up once again at this new auction as it looks to beef up its spectrum holdings.

When it comes to the auction, Moffett sees “no good outcomes here” since AT&T will either be adding to its debt by paying heavily for additional spectrum or cooling its spending, only to further its “spectrum disadvantage.” Moffett added that given the backdrop, “the market has understandably greeted AT&T’s transformation back to its telecom roots with some skepticism.” According to Moffett, the telecom business has historically been a sub-GDP growth industry, something that they don’t expect to change in the era of 5G, and AT&T is likely to be a share loser in that sub-GDP growth industry.

On the other hand, AT&T will work with Frontier Communications to bring fiber-optic connectivity to large enterprise customers outside AT&T’s current footprint. The two companies signed multi-year strategic agreements that will also support deployment of AT&T’s 5G mobility network. AT&T is building out additional fiber across its wired footprint and plans to reach about 2.5 million incremental customer locations passed by the end of 2021 and 30 million locations by the end of 2025.