AT&T Inc. (NYSE: T), Discovery Communications, Inc. (NASDAQ: DISCA) – Why did AT&T Stock get an upgrade?

AT&T Inc (NYSE: T) has been a hot topic of discussion given the company’s decision to divest from its streaming business to focus on its communications assets. The decision to “go back to basics” led to an analyst upgrade on Friday.

The AT&T analyst: UBS analyst John C. Hodulik moves AT&T shares from Neutral to Buy and raises the price target from $ 32 to $ 35.

Related Link: Why the Discovery AT&T Deal Poses a Credible Threat in Streaming Wars

The analyst’s takeaways: Realization of a spin-off of its streaming activity with Discovery communications (NASDAQ: DISCA) could help simplify AT&T structure.

“We see favorable risk-return at the current valuation given a more streamlined set of connectivity-based assets, lower dividend payout, better visibility into EBITDA growth and higher leverage. low, ”Hodulik said.

The deal with Discovery will reduce AT & T’s dividend payment by approximately 45%. The deal structure could bring in $ 7 to $ 8 per share in a one-time tax-exempt payment via shares of DiscoveryWarner, which is four to five years of lump sum dividend payouts, Hodulik said.

The analyst estimates that a free cash flow target of $ 20 billion is achievable by 2023. Interest costs will be $ 2 billion lower according to the analyst.

“We anticipate growth in wireless and fiber with further reduction to more than offset legacy declines.”

The analyst assigned a price target of $ 35 based on a value of $ 28 per share for AT&T Communications and $ 7 per share for the 71% stake in streaming company WarnerMedia and Discovery Communications. .

“While we believe a reduction is warranted given AT & T’s higher wireline cable mix, we believe the gap should narrow,” Hodiulik said.

Price action T: AT&T shares are up 1.13% to $ 29.98 on Friday afternoon on the release.

(Photo: AT&T)