Shares of telecom giant AT & T have been in a rut this year, and Morgan Stanley says the historically low prices make the stock look enticing. "We believe that recent stock price underperformance has created an attractive risk reward opportunity, while we see a number of catalysts to unlock value by mid-2022," Morgan Stanley's Simon Flannery said in a note Thursday. Morgan Stanley upgraded AT & T to an overweight rating from equal-weight. The firm also lowered its price target to $28 from $32. The new projection is 26.3% higher than AT & T's Wednesday close. Shares of AT & T are down nearly 23% this year, compared with the S & P 500's 25% gain. The stock rose 1.6% in premarket trading Thursday. "At these levels we believe the stock is discounting an overly negative outlook," Flannery said. Despite challenges in the stock action, AT & T's financial and operating performance has been strong this year, Morgan Stanley said. Plus, more visibility into AT & T's WarnerMedia and Discovery deal should provide a catalyst next year. AT & T in May announced it would combine its content unit WarnerMedia with Discovery. Under the agreement, AT & T will unwind its $85 billion acquisition of Time Warner, which closed just under three years ago , and form a new media company with Discovery. "Deal approval and closing should occur during 2Q22 although regulatory delays are certainly possible even though the companies are encouraged by progress to date," Flannery said. The closing of the agreement should allow AT & T's flagship communications segment to shine, Morgan Stanley said. "We believe AT & T's core Communications business is undervalued and should rerate as we get more clarity on the WarnerMedia/Discovery transaction," Flannery said. —CNBC's Michael Bloom contributed reporting.
AT&T logo is seen on a smartphone in front of displayed Discovery and Warner Media logos