On Monday, Morgan Stanley (NYSE:MS) reiterated its equal-weight rating on AT&T Inc. (NYSE:NYSE:T) with a price target of $19.00. The rating comes as AT&T prepares to host its Analyst and Investor Day on Tuesday in Dallas, which will be webcast live starting at 2pm ET. In a note to clients, analysts at Morgan Stanley detailed their expectations of the event.
The focus of the event is set to be on the company’s investment-led growth strategy and capital allocation plans.
“We expect the company to announce a new buyback program, and
an expanded fiber build program, while the company may provide some preliminary financial expectations for 2025,” Morgan Stanley said in its note to investors.
AT&T’s stock has seen a 16% increase in the past three months, outperforming Verizon (NYSE:VZ)’s 6% despite recent rises in long-term interest rates. AT&T’s stock currently trades at just over 10 times earnings and offers a free cash flow (FCF) yield of over 10%, with the company proposing a competitive dividend yield of approximately 5%. Morgan Stanley expects AT&T to reveal a multi-year buyback program in the $5-8 billion range per year, which could equate to about 6% of shares outstanding over two years.
For 2024, AT&T has guided to approximately $17-18 billion in free cash flow, which includes around $3 billion from DTV. Dividends are expected to be just over $8 billion. The firm suggests that AT&T is likely to maintain leverage at around the 2.5x net debt to adjusted EBITDA range over time, aiming to reach their net debt to adjusted EBITDA target of 2.5x by the first half of 2025.
In terms of fiber expansion, Morgan Stanley expects AT&T to extend its current in-region fiber build target from 30 million to 40-45 million consumer and business locations by the end of 2025. The company has noted the benefits of convergence between fiber and wireless services, with about 40% of fiber customers also subscribing to AT&T wireless services. Additional details are anticipated regarding the Gigapower Fiber joint venture with Blackrock (NYSE:BLK), which initially targeted passing 1.5 million fiber locations, as well as other fiber partnerships out of region.
While formal guidance for 2025 may not be provided at the upcoming meeting, AT&T is expected to discuss key trends for the next year, including resilient wireless service revenue growth and the potential for consistent growth in consumer wireline backed by fiber. Morgan Stanley is also interested in AT&T’s cost efficiency opportunities, particularly those leveraging artificial intelligence for productivity, which could contribute to modest EBITDA growth in 2025.
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