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AT&T Soon Will Catch Up to Rival Verizon. The Stock Is a Buy.

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A sign is posted in front of an AT&T retail store in San Rafael, California.
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AT&T could finally start catching up to its main rival, prompting analysts at Citi to place the stock on a three-month catalyst watch.

“We believe the potential for consensus expectations to rise for postpaid phone net adds and forward progress towards closing the deal with Discovery (ticker: DISCA) could lead the valuation gap to narrow between A T &T (T) and Verizon (VZ),” analyst Michael Rollins wrote on Tuesday.

The merger between Discovery and AT&T’s WarnerMedia subsidiary was given the green light by the European Commission in early January, boosting expectations that the deal will close mid-2022. Rollins believes the deal’s close will be an important catalyst for AT&T’s stock, in addition to the company’s ability to attract new customers.

AT&T said last week it added a net 1.3 million postpaid phones in the fourth quarter, above consensus.

Rollins reiterated a Buy on the stock and a $29 price target, in line with the consensus target price of $30.25, according to FactSet. Of the 29 analysts covering the stock, 10 rated it a Buy or Overweight, 16 rated it a Hold, and three gave it a Sell or Underweight.

The possibility that the merger falls through is a real risk to the analyst’s bullish scenario. Other risks include the intense levels of competition within the industry, higher interest rates, execution problems from other acquisitions, increasing pressure from cord-cutters, and migration to streaming platforms, Rollins added.

AT&T stock was down 0.7% Tuesday, trading at $26.27. The stock has gained almost 7% this year.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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