Barclays Just Upgraded AT&T To Overweight, Notes 'Multiple Levers' At Play

In a report published Tuesday, Barclays analyst Amir Rozwadowski upgraded the rating on AT&T, Inc. (NYSE: T) from Equal-Weight to Overweight, while raising the price target from $34 to $39. The analyst believes that there are "multiple levers" to drive the company's bottom line, despite the competitive pressures in the U.S. wireless market.

According to the Barclays report, "the number of levers (i.e. revenue and cost synergies) that could positively impact AT&T's bottom line post the imminent close of the DIRECTV (NASDAQ: DTV) transaction are too material to ignore."

The analyst expresses optimism regarding the combination of declining external concerns, such as earnings deceleration driven by increased competition, and internal worries, such as leverage ratios and dividend coverage, along with expectations of a positive earnings revision cycle following the closure of the DIRECTV deal.

"While management has already raised the bar on potential cost synergies ($2.5B vs. prior $1.6B outlook) we believe further opportunities exist specifically around reduced investment in legacy access infrastructure," Rozwadowski said.

The analyst also expects AT&T to see increasing revenue synergies via cross-selling, along with the possibility of a shift towards capitalizing fulfillment costs, to not only help the company's near-term earnings but also have the potential to raise earnings power.

"The maturation of the smartphone cycle coupled with ongoing share gains by smaller players will continue to support intensified competition. Though bundled packages – including DTV content – should help, our thesis is not predicated on a reversal of recent pressures to its core business," Rozwadowski added.

The analyst also believes that AT&T is among the companies best positioned to benefit from favorable earnings revisions. Increasing earnings power is expected to drive the company's share price up over time.