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Morgan Stanley comes out bullish on AT&T in catalyst-driven look at Discovery deal

Mar. 04, 2022 12:41 PM ETAT&T Inc. (T), WBDWBDBy: Jason Aycock, SA News Editor114 Comments

Warner Bros. Discovery logo

Morgan Stanley has taken a bullish stance on AT&T stock (T -0.7%), with a catalyst-driven take that the upcoming spin-off of its shares for the Warner Bros. Discovery deal will unlock value in communications.

The update comes ahead of AT&T's

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Comments (114)

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I have no trust in the current management or BoD. If they were any good, competent or looking after the shareholders they would be going after the last CEO and claw back every penny he got for pension, options and performance compensation. So what if it gets litigated. Current management is the same as the previous. AT&T is toast specially know that 5G is getting crowded. JMHO
petethebeet profile picture
Opportunity knocks! Fourth time’s the charm for slip and fall AT&T management. Promise.
Why doesn't T show their support for Ukraine and shut down their communications in Russia , if any ?

Such a dumb company like most multi-nationals .
SPEND your money. Write a WILL profile picture

Why should they? Its all abt. revenue/income for most companies.
optomos profile picture
@manfac They don't provide service there and they pulled the showing of The Batman.
DividendInvestorLA profile picture
@optomos Oh the horror.... Russians won't be able to see another bad movie... That'll teach them!!
DividendInvestorLA profile picture
Hilarious!! The same investment bankers that killed billions of shareholder money in advising T to "invest" in Hollywood are now excited because T is quickly separating itself from the purported gold mine of Hollywood content.

They have no shame...
richjoy403 profile picture
Absent compelling new information. I'll almost certainly exit my $T position (and new $DISCA shares) before year-end.
Moe Value Picks profile picture
@richjoy403 Why would you exit the new DISCA shares (I kinda understand the reasoning for exiting T)
richjoy403 profile picture
@MoeBoe -- Four reasons...
First, in addition to $T, I have positions in $AAPL, $DIS, & $PARA.
Second, streaming has become very crowded; I see a shakeout of the industry's weaker hands/shallow pockets as very likely. Third, I've no desire to build another full streaming position by investing in more $DISC shares post-merger.
Fourth, by year-end, I'll be cutting weeds to meet a 6-digit RMD, and (absent unlikely new information) both T and the new $DISC shares are a likely choices.

My comments reference management of my portfolio (and are not a recommendation to others).
You should have said all this to begin with.
SPEND your money. Write a WILL profile picture

Way to go WB
DividendInvestorLA profile picture
@dont Hoard, SPEND. write a WILL, damn it WB, the company that makes so much money T is forced to get rid of it without a buyer in sight....
Bilbozark profile picture
I have a projection based on an estimate of a view of the future that is a solid odds for a permutation based on typical investor behavior surrounding a bifurcated outcome.
School of Jim Cramer and Blather Company Analysts
casemoffitt profile picture
I’ll pass
Don't buy wait...100%
SPEND your money. Write a WILL profile picture
Hope for the worst, expect the best, come March 11th.

or wait....is it the other way round?
@dont Hoard, SPEND. write a WILL, damn it
Hard to tell with the current AT&T senior management and BOD. Hopefully that question will be answered on March 11th.
MWinMD profile picture
There's no way that RemainCo receives the same paltry multiple that T has been saddled with, AFTER unloading a lot of debt. Their discount to VZ has always been explained by the debt. Market can't keep singing that old tune.
@MWinMD I agree. Verizon is sitting at $230B. This Morgan Stanley “bull case” of $20 per share would value AT&T at only $143B. That’s quite the gap.
For those long T.
Are you going to keep the DISCA shares you receive, sell immediately after close
of the deal, add more DISCA to round up, or take a wait and see?

@obiwan48 Hold or add. Under $25 I would/will likely add. If T goes under pressure, I'll add too.
@obiwan48 my non-analytical, uneducated, non-invester brain is telling me to hold a year before making further decisions on both T and WBD shares.
@obiwan48 probably buy enough to round out the new shares to the next even hundred shares then watch and wait.
T management is a true destroyer of capital
I'm guessing that if the deal closes mid to late April the next dividend payment will be $1.11/share and not the usual $2.08/share? I was hoping to get one last payment of $2.08/share but I don't believe it's going to happen. Is this correct?
@jblain I think they will declare the dividend this month, either following the Investors Day meeting Mar 11th, or on their normal declaration date of Mar 26. Don't be surprised if they delcare $1.11/share before the deal closes, but like you, I would love to see 1 more $2.08/share divy.
@jblain Nobody knows for sure right now, but the answer will be revealed this month. My take is $1.11.
@Dr0Doom The dividend wont drop until after the deal closes. The real question is will they pay or go ex dividend before or after the deal closes. Verizon just announced their dividend. So if T wants to close the deal in April and pay the larger dividend beforhand, an announcement should come soon. If they want to pay the reduced dividend, we probably wont see an announcement until April near the time of the deal closure.
WISRJS profile picture
Well of course I am going to give this new management a chance, what choice do I have. My cost is $34 (7000 shrs). But soon a I can get out somewhere near my cost I am out of this shitshow. There are lots of companies that I would very much like to go deeper in, just to name a couple, LMT and NOC. Last time I added to LMT I paid $330. The war has been very good to these two but they were good before the war. Shell is another one I am thinking of dumping if and when the time is right. Read their latest earnings transcript and the questions raised by the JP Morgan rep. I have had the same concern. Some years ago PG went through a major restructure. They peddled their low margin stuff to concentrate on their core business. What's not to like about that. When you find what seems to be good management, go for it. There are so many very well run companies in this country that it is really hard to go wrong.
@WISRJS What difference does it make what your cost was? The only thing that should matter is what your perception of the value of the shares are. If you think they might actually warrant getting back to your $34 cost realistically, why not buy more now, and if some or all of your current shares are held in a taxable account, you can elect to take the tax loss on those, past 31 days, as the stock (hopefully, if your valuation is correct) climbs closer towards that $34. But if you think this really is a shitshow, worth far less than your $34 cost….just sell it. The market, as they say, doesn’t care what you paid for the stock. You shouldn’t allow it to cloud your judgment either.
@Are you kidding I have tax loss and rebought 3 years in a row on T this year I finally gave up... went to a utility stock and VZ... probably the wrong time to give up but I did...
@Are you kidding totally agree with your comments and well put. If you wouldn't buy it today at todays price with todays fundamentals then why hold it in position just hoping for a bounce to get back to even ? Not a good strategy.
hugh74jones profile picture
Sounds like a familiar tune on the violin --- but as I did not sell my large T position either, I will welcome supportive articles vs the opposite. The spinoff terms are clearer now --- but the cards still "in the deck" are how management handles matters after the spinoff; meaning plans, and forecasts, and putting words into meaningful actions.
Alpwolf profile picture
A little cost averaging might help unless one thinks the present
Price for T is still a looser at these levels.
Analysts have a bad habit to down grade when a stock is down
And upgrade when the stock is up…
Makes them look good
This takes guts promoting a smelly duece like AT&T
Donald Johnson profile picture
I haven't sold my T shares and don't plan to.

Both T and DSCA should be more profitable and stronger companies after the deal is completed, and the dividends will be pretty good.

What I'm also hoping is that both companies' puts and calls options will become more active and liquid, which would make it easier and more rewarding to sell covered calls and cash secured puts on the stocks.

The stocks already are pretty volatile, but the could become a bit more volatile and attractive to hedge funds, mutual funds and individual speculators.

I've mostly refrained from trading T's options because it's hard to know when the deal will be done.

Apparently, when it is, the options will be fractionalized and harder to evaluate and trade. It isn't clear what happens to the number of T shares current owners will retain after the deal? 76% or 100%?

If I had something that looked a lot better to buy, I'd sell T and buy something else. So far nothing has caused me to do that.
@Donald Johnson
What do you mean number of T shares? My understanding is they stay the same, just the share price will decrease as Warner Bros valuation will be deducted. Am I wrong?
Donald Johnson profile picture
@Niki Naza I don’t know. But if the stock will just go down, why aren’t there a lot of shorts on T? Nobody would buy a stock that they know will go down when the deal is done even though they’ll get Discovery shares in the deal. So I’m thinking we’ll end up with fewer T shares while adding the WBD shares. Again, I don’t know for sure.
@Donald Johnson because they would be short wbd shares too.
The split won't magically produce significant amounts of money
Disca is going to be ugly right after the spin.
Pts117 profile picture
If you assume a modest 2% income growth rate, these shares are trading at an implied 15% discount rate, meaning, they're priced to return 15% annually for decades. That makes no sense for a BBB rated telecom.
Pts117 profile picture

If you assume 0% growth rate, the implied annual return is 13%. That's crazy.
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