The Ratings Game: AT&T stock rallies after an upgrade—but it’s hardly a ringing endorsement

After AT&T Inc. shares ended Wednesday’s session at an 11-year low, one analyst is ending his bearish call on the stock.

KeyBanc Capital Markets analyst Brandon Nispel upgraded AT&T shares

to sector weight from underweight, writing that the shares now sport a fair valuation given that the company is in the process of simplifying its structure.

AT&T shares are up 1.8% in Thursday trading and on track to snap a six-session losing streak. They have lost 10.4% so far this year, while the SPDR Communication Services Select Sector exchange-traded fund

has advanced 19.3% and the S&P 500 SPX has added 17.8%.

AT&T has made progress on refocusing its business in the past year, selling its DirecTV business and announcing plans to spin off WarnerMedia as it doubles down on wireless and fiber. “These strategic changes are positive, in our view, and should result in a simplified structure and reduced leverage, which was part of our concern,” Nispel wrote.

Nispel still believes that AT&T is No. 3 in the U.S. wireless landscape, though he acknowledged that the company is seeing some improving metrics. In addition, he said that “AT&T’s broadband business competitiveness is overstated currently” but that the company’s growing fiber investments could “help offset U-Verse/DSL losses.”

See also: The 5G race heats up further with wireless auction that could draw more than $30 billion in spending

Despite the upgrade, Nispel still has a fairly muted view of AT&T, calling the stock a “value trap” and writing that he doesn’t recommend owning it. He thinks AT&T’s target for $20 billion in 2023 free-cash flow is “unachievable” and argued that while AT&T should be able to support a dividend payment of more than $8 billion, “the company is likely to miss its payout ratio target of 40%-43% of free-cash flow.”

Nispel’s note follows another AT&T upgrade to neutral, from MoffettNathanson analyst Craig Moffett, who boosted his rating last week.

This post was originally published on Market Watch

Financial News

Daily News on Investing, Personal Finance, Markets, and more!