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AT&T Stock Adjusts For Warner Bros Discovery Debut; JPMorgan Resumes Coverage With ‘Overweight’ Rating

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AT&T  (T) – Get AT&T Inc. Report shares were marked sharply lower in pre-market trading Monday investors adjusted for the completion of its $43 billon media merge with Discovery  (DISCA) – Get Discovery, Inc. Class A Report that will begin trading later today.

Warner Bros Discovery Inc. will trade on the Nasdaq under the ticker symbol ‘WBD’ today, with CEO David Zaslav CEO at the helm, following A&T’s decision to spin-off its interest in WarnerMedia earlier this year. AT&T shareholders will own 71% of the combined group, with the remaining 29% taken-up by Discovery shareholders.

The move leaves the newly-created group with a fleet of media assets including the Discovery Channel, Warner Bros. Entertainment, CNN, HBO and the Cartoon Network as well as lucrative streaming services such as HBO Max and Discovery+.

“With our collective assets and diversified business model, Warner Bros. Discovery offers the most differentiated and complete portfolio of content across film, television and streaming,” Zaslav said. “We are confident that we can bring more choice to consumers around the globe while fostering creativity and creating value for shareholders. I can’t wait for both teams to come together to make Warner Bros. Discovery the best place for impactful storytelling.”  

AT&T shares were marked 23.16% lower in pre-market trading to indicate an opening bell price of $18.55 each while Discovery was marked 0.1% lower at $24.41 each. 

The deal closure also cements AT&T as a “core communications services business with strong customer relationships in wireless and fiber to drive recurring revenue, EBITDA and FCF growth,” according to JPMorgan analyst Philip Cusick, who resumed his coverage of the stock with an overweight rating and a $22 price target. 

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“The company is investing in its wireless network with its 5G build out as well as expanding its fiber footprint to 30 million locations by 2025,” he said in a client note. “The network enhancements support wireless subscriber and service revenue growth in Mobility and broadband services in Consumer and Business Wireline.”

AT&T said last month it sees low single-digit revenue growth in 2023, with adjusted earnings in the region of $2.50 to $2.60 per share, or around $44 billion. 

The group also reiterated its plan to pay an “attractive” annual dividend of around $8 billion after the close of the WarnerMedia/Discovery deal, a figure that represents a payout ratio of around 40% against its free cash flow forecast of $20 billion.

That payout, AT&T said, will still allow for around $48 billion in new investments as it expands its 5G wireless and fiber interest services as part of its shift towards a ‘pure play’ telecoms group. It wants to double its fiber network and expand its 5G network to 200 million homes, and sees capital investments of $24 billion this financial year and $20 billion in 2024.

“Along with revenue growth, cost savings support margin improvements across all the business segments and corporate level,” Cusick said. “After 2023, the company expects to ramp down capital investment, which will support free-cash flow growth further.” 

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