Goldman Sachs Reinstates AT&T at Buy, Downgrades Verizon to Neutral on Relative Valuation

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Goldman Sachs analyst Brett Feldman reinstated research coverage on AT&T (NYSE:T) at Buy with a $23.00 per share price target.

The analyst is bullish on AT&T after the company completed asset sales and spin-off of WarnerMedia. The analyst is especially positive about the communications-focused business model and adjusted capital allocation priorities after the spin off.

These changes have better positioning the operator “to invest in core growth opportunities (fiber, 5G) and therefore sustain more durable trends in revenues and adjusted EPS.”

Moreover, the analyst sees an “attractive” valuation at which AT&T is trading especially when compared to Verizon (NYSE:VZ).

“We believe that as AT&T shows improved execution and financial performance over the coming quarters this valuation gap with Verizon will compress driving outperformance in AT&T,” Feldman wrote in a client note.

Elevated valuation is the key driver behind Feldman’s note to downgrade VZ stock to Neutral from Buy with a price target of $55.00 per share, down from $61.00.

“Our downgrade primarily reflects our view that VZ offers less total return potential vs. its large cap peers in telecom and cable, most notably AT&T, which trades at a discount to VZ on earnings and dividend yield, despite our outlook for similar durability in the carriers' earnings and payouts, as discussed above. Since being added to the Buy List on June 21, 2018, Verizon’s shares/total return are +7%/27% vs. +55%/60% for the S&P 500. We continue to see VZ as well positioned to maintain its leading market share in the wireless sector during the 5G cycle,” Feldman added in a note.

Verizon shares are down nearly 1.5% in pre-open Monday.

By Senad Karaahmetovic