Wells Fargo: AT&T, Time Warner Ought To Beware The Ides Of March

Judgment day is fast approaching for AT&T Inc. T, which is staring down a March 19 court date with the Department of Justice, which is suing to block its proposed buyout of Time Warner Inc TWX.

While the uncertainty surrounding the merger has kept some Wall Street analysts on the sidelines, at least one analyst says investors shouldn’t let the trial scare them away from AT&T stock.

The Analyst

Wells Fargo analyst Jennifer Fritzsche has reiterated an Outperform rating and $48 price target for AT&T.

The Thesis

According to Fritzsche, AT&T is firmly committed to completing the deal.

“While we appreciate history is against T in this fight, based on our legal contacts take, we still very much believe case law is on T's side,” Fritzsche said in a Friday note.

Either way, AT&T shareholders can expect to have an official decision by the judge overseeing the two-week trial by early May.

At this point, Wells Fargo estimates the market is expecting the deal to be blocked. The firm’s risk-arb team estimates the market is pricing in a 30 to 40 percent success rate for the merger.

Fritzsche says headline risk could certainly weigh on AT&T’s share price for now, but the stock doesn’t seem expensive at this point. AT&T is trading at about 10 times Wells Fargo’s 2019 EPS estimate. Fritzsche says recent commentary from management suggests AT&T may be well-positioned to accelerate its revenue growth in coming quarters, with or without Time Warner.

Price Action

AT&T stock traded around $36.49 on Friday.

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Photo courtesy of AT&T.