Why AT&T Stock Rallied Tuesday Morning

Shares of telecommunications specialist AT&T (T 2.32%) popped on Tuesday, climbing as much as 3.3%. As of 1:30 p.m. ET, the stock was still up 2.6%.

The catalyst that sent the telecom stock higher was an upgrade and some positive commentary from a Wall Street analyst.

Is AT&T stock going to $21?

Wolfe Research analyst Peter Supino upgraded AT&T stock to outperform (buy) from peer perform (hold) while simultaneously boosting his price target to $21. For those playing along at home, that suggests potential upside of 25% compared to Monday’s closing price.

The analyst points out that AT&T has underperformed over the last several years — which is undeniable. Over the past three years, AT&T stock is down 25%, even as the S&P 500 has gained 34% (as of the market close on Monday).

Supino notes that rating the stock underweight (sell) has been a “safe” bet, but believes the pessimism is now overdone. “Amidst apathy and negative muscle memory, we argue that it’s time to take [AT&T] seriously as a long,” he wrote. He went on to point out that “amid bad headlines about convergence, interest rates, and lead, AT&T is growing its core, gaining efficiency, and paying down debt.”

The evidence is beginning to mount

After years of subpar performance, AT&T may finally have turned things around. In its most recent quarter, AT&T delivered, generating solid revenue growth, robust free cash flow, and notable subscriber gains. Perhaps most importantly, the company achieved its goal of $6 billion in run-rate cost savings and is making progress toward an incremental $2 billion cost savings by 2026.

The stock is still trading near a 30-year low, selling for less than 9 times earnings. That, combined with its dividend yield of 6.6% and a reasonable payout ratio of 57%, suggests it may finally be time to buy AT&T.

Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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