AT&T Inc (NYSE: T) has handily outperformed the broader market this year but a MoffettNathanson analyst cautions against expecting any more heroics from this stock in 2023.

AT&T stock shouldn’t be worth more than $17

On Monday, Craig Moffett downgraded this telecommunications giant to “underperform” and said shares could sink to $17. That represents an 8.0% downside on its previous close.

He’s dovish because he lacks confidence in the ability of AT&T to lift its free cash flow next year.

 

Over the period of AT&T sharp bounce, free cash flow expectations for the company have only worsened. And while we expect them to provide guidance suggesting that FCF will rise YoY in 2023, we’re skeptical that it actually will.

The Dallas-headquartered company had better-than-expected earnings in its recent quarter (source) but the analyst does not like that its overly dependent on costly handset promotions to sustain growth.

Verizon stock is better in terms of valuation

According to Craig Moffett, over $120 billion of long-term debt on the balance sheet makes AT&T all the more unattractive.

On valuation basis, he dubs Verizon Communications Inc (NYSE: VZ) a better pick to play this space. Shares of Verizon have lost about 30% this year as it resorted to steep promotions to retain customers.

 

This problem with this is that as Verizon starts to behave more like AT&T, their churn will go down, and in doing so, the gross addition pool available to AT&T will shrink, forcing AT&T to up the ante lest they begin fall behind.

His price objective of $41 on the Verizon stock suggests a 12% upside from here.

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