Analyst Frank Louthan also issued a price target of $34 per share, representing 12% upside over the stock's previous closing price. Shares were trading at $30.55 Friday afternoon.
"The outlook for positive earnings growth combined with a strong de-levering story are likely to drive the shares to outperform," Louthan wrote in a note to clients. "AT&T trades at a discount to Verizon of ~3.5 times EPS and FCF, with 250 bp higher dividend yield. We believe that the combination of positive earnings growth and delivering over the course of the year will being investors back to AT&T."
"As such, for longer term-oriented investors, locking in the 6.7% yield and waiting for mean reversion in valuation is likely to be rewarded," Louthan said.
Louthan's note should provide some comfort for nervous AT&T investors after the company's stock dropped earlier this week after the company unveiled a major revamp of its DirecTV Now streaming service, and CFO John Stephens warned of near-term numbers that could be troublesome.
"WarnerMedia was (10 cents a share) accretive in the fourth quarter ... I expect it to continue to be accretive throughout the year, but I will tell you that historically WarnerMedia's first and second quarter, because their NCAA and NBA contracts, are followed by their two strongest quarters which are third and fourth," Stephens said.
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