Following analyst upgrades, downgrades or initiating coverage reports can be exhausting. Wall Street is constantly raising, lowering or reiterating their position on a stock, sometimes changing a price target by just a few cents or dollars.
Yet knowing where analysts think a stock is headed can still be useful. After all, they do have access to management that is unavailable to the average investor. They can gain greater insight into whether a business will grow or contract. That should be reflected in their ratings.
That’s why stocks with changed analyst ratings should warrant closer attention by investors. All three companies below were recently upgraded or had coverage initiated on them with a buy rating. Let’s dig a little deeper into the stocks to see if they are right for your portfolio.
AT&T (T)
Telecommunications giant AT&T (NYSE:T) just had coverage initiated on it by Goldman Sachs with a buy rating. Analyst Jeremy Schneider assigned a $22 per share price target on the stock, which is inline with the $21.73 per share consensus view. Wall Street as a whole has a moderate buy rating on the telecom.
There’s a reason Ma Bell sets well with analysts. Its first-quarter results in April showed near-record low wireless customer churn, or the number of customers who left the carrier. AT&T says it had an industry-leading postpaid phone churn rate of 0.72% for the period. In comparison, T-Mobile (NASDAQ:TMUS) had 0.86% churn while Verizon (NYSE:VZ) reported 0.89% churn.
AT&T said it added fewer net postpaid wireless phone customers during the quarter, or 349,000, versus 424,000 a year ago. Cost-cutting measures and fewer phone upgrades helped raise operating margins by 30 basis points (bps) to 23.4%.
Moreover, it reduced its network investments, which yielded improved free cash flow (FCF) of $3.2 billion. That is a $2.1 billion increase year-over-year (YOY). It expects to generate between $17 billion and $18 billion in FCF in 2024, which will support its dividend that yields a very attractive 6% annually.
AT&T stock is up 12% in 2024 and 18% over the past year. Trading at under $19 a share, Goldman Sach’s price target implies additional 17% upside in the stock.
American Tower (AMT)
Goldman Sachs’ Schneider also initiated coverage on American Tower (NYSE:AMT) with a buy rating and a $230 per share price target.
The specialty real estate investment trust (REIT) owns cellular towers around the world and leases them to wireless service providers, radio and television broadcast companies, and others under long-term leases. Although the industry fell out of favor due to carrier consolidation, the future looks particularly promising considering the continued growth in demand for mobile data.
However, American Tower might have lopped off its own knees by selling its tower business in India, a market with tremendous growth potential. It also entered the data center market and owns 28 facilities. Yet, there doesn’t appear to be a significant connection between its primary tower business and data centers. So, it may prove to be a fruitless venture.
Still, AMT’s tower business is growing. It reported same-tower sales growth of 5% in the first quarter and its ability to impose annual price increases helped expand EBITDA margins by 160 bps to 65.4%. That should continue to improve in the quarters ahead.
Like all REITs, American Tower is required to pay out 90% or more of its profits as dividends. And, it has raised its payout by more than 16% a year for the past decade. Growing FCF at a compounded annual growth rate of 12% over that period, it has plenty of cash profits to support the payout, which yields 3.4% annually.
The analyst’s price target implies 19% upside in the stock, making American Tower stock worth considering for your portfolio.
Digital Realty Trust (DLR)
Speaking of data centers, the largest data center owner with over 300 locations is Digital Realty Trust (NYSE:DLR), which is also organized as a REIT. Schneider was active here as well, initiating coverage with another buy rating and a $175 per share one-year price target. The explosion in artificial intelligence (AI) has made data centers mission-critical and positions Digital Realty Trust at the epicenter of the technology.
AI drove the REIT’s massive bookings in the quarter, which Digital Realty says will contribute some $252 million in annualized GAAP rental revenue. That was 40% more than its previous record. Hyper-scalers like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have an insatiable need for more capacity. DLR said data center deployments for such customers amounted to $175 million in annualized revenue.
Also, the REIT was able to increase rental rates on renewal leases by nearly 12% as a result. Yet there is simply so much AI demand that the REIT likely won’t have the capacity to meet it all. Right now, though, Digital Realty Trust is taking on as much as can be thrown its way. It reported earnings of 82 cents per share, a blistering beat ahead of Wall Street’s expectations of just 24 cents.
Schneider’s price target implies 15% upside in the stock, but it could easily blow through that level. The stock is up 33% over the last 12 months. Additionally, Digital Realty pays a dividend yielding 3.3% annually.
On the date of publication, Rich Duprey held a LONG position in T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
