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The Ratings Game: AT&T’s ‘far simpler story’ and ‘solid’ dividend earn stock an upgrade

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Not long ago, Verizon Communications Inc. was winning praise for its simple story, while AT&T Inc. sparked concerns with its hodgepodge of wireless, satellite and media businesses.

Nowadays, things are a bit different. AT&T
T,
+2.78%

has taken steps to refocus its business on telecommunications through a series of divestments. Verizon
VZ,
+2.53%
,
meanwhile, still has its straightforward business makeup, but its recent performance has some investors feeling skittish.

A recent upgrade at Raymond James seemed to illustrate the changing of the guard.

“We believe the AT&T story is simplifying, which will further attract investors,” Raymond James analyst Frank Louthan IV wrote as he raised his rating on AT&T’s stock to strong buy from outperform. “Additionally, we believe simple recurring revenue names with solid dividends like AT&T are better performers in a difficult tape, and with macro issues impacting the market, we believe the company can outperform.”

Telecommunications stocks “tend to perform worse than expected in an economic downturn,” he wrote, but most of that risk seems to be baked into AT&T’s stock price, in his view. AT&T shares are trading below their 2-year, 5-year and 10-year average price-to-earnings multiples, even as the company has “a far simpler story today with less cyclical business and better earnings growth than peers,” he noted.

“While we still caution investors that telecom stocks may not be the most defensive, the businesses definitely are, and we do not expect weakness in the fundamentals,” Louthan continued.

He thinks that AT&T has a better outlook than Verizon when it comes to wireless subscriber growth, earnings-per-share growth and margin expansion.

“So in a very fierce competitive environment, AT&T and Verizon are both aggressively marketing,” Louthan wrote, but AT&T is already achieving success on those three points. “As such, we believe AT&T can continue to outperform Verizon for the next few quarters,” he added.

AT&T shares are up 4.3% in Monday morning trading and are currently the second-best performer in the S&P 500
SPX,
+0.09%
.
At various points earlier in the session, AT&T was leading S&P 500 gainers.

The shares have seen some momentum in the wake of Thursday’s earnings report: AT&T’s stock enjoyed its best week since 2000 last week.

Shares are still down about 4% on the year, though declines for Verizon are far steeper at upwards of 30%.

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