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AT&T Gains as Analysts Laud Discovery Deal Despite Dividend Cut

AT&T shares rise after the company receives a pair of upgrades from analysts who laud the telecom giant’s plans to merge its WarnerMedia unit with Discovery.

AT&T  (T) - Get AT&T Inc. Report shares rose Friday after the company received a pair of upgrades from Wall Street analysts who lauded the telecom giant’s announced plans to merge its WarnerMedia unit with Discovery  (DISCA) - Get Warner Bros Discovery Inc Com Ser A Report in a $43 billion deal.

AT&T shares were up 1.1% in premarket trading in the wake of the ratings upgrades, which followed AT&T’s announcement Monday that it will combine its media powerhouses CNN and HBO with Discovery's HGTV and the Food Network.

UBS analyst John Hodulik lifted his rating on AT&T to buy and raised his one-year price target to $35 from $32, noting that AT&T’s simplified structure and improved visibility create an “attractive” risk-reward profile. 

He added that management’s target to achieve $20 billion in free cash flow is “achievable,” while capital intensity should ease beyond 2023.

New Street’s Jonathan Chaplin, meantime, upgraded AT&T to buy from neutral and set a tactical six-month price target of $35, noting that despite being negative on AT&T for “most our career” due to the overhang of WarnerMedia, his team is upgrading now because the AT&T management team “has taken the right steps to improve the business.”

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TheStreet founder Jim Cramer and his Action Alerts Plus team had a different view on the deal, pointing specifically to AT&T’s announced dividend cut, which the company said will be "re-sized" to account for the distribution of WarnerMedia assets into a new company but will effectively take it off Wall Street's "Dividend Aristocrats" list.

Despite “not being fans of AT&T for quite a long time,” the AAP team had added the company to its “bullpen” - the short list of stocks they’re looking to call up to the proverbial portfolio playing field - a week before the announced deal on signs that AT&T's WarnerMedia integration was working.

“Well, management is now spinning off all of WarnerMedia, including HBO Max. And management's commitment to the dividend held true up until they cut the dividend payment this morning," the AAP team said in a report following the deal.

“It is not in our style to invest in a management team that is willing to say one thing, and then do something else shortly after. Accordingly, we will be removing AT&T from the bullpen as we are no longer looking to buy this stock.”

At last check, shares of AT&T were up 1.545% at $30.07. Shares of Discovery were up 0.59% at $30.04.

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