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Citi says buy AT&T stock as the telecom giant is 'in the early innings of a multi-year transition'

Randall Stephenson, CEO, AT&T
Patrick T. Fallon | Bloomberg | Getty Images

Citi upgraded AT&T shares to buy from neutral on Tuesday, saying the company is beginning to turn things around after a downtrodden year.

"The recent share price underperformance provides a better risk reward scenario," Citi analysts said in a note. "We see still AT&T in the early innings of a multi-year transition across a number of its operating segments that may require more investment before bearing the fruits of better revenue and cash flow contributions over a longer period of time."

"We expect AT&T to further benefit from the measured promotional environment in wireless," Citi said, adding that AT&T has several ways to manage its free cash flow and support its goal of reducing debt next year.

AT&T shares rose 1.3 percent in premarket trading from Monday's close of $29.91 a share. Citi holds a price target of $34 a share on the stock.