Raymond James upgrades AT&T to strong buy, says telecom giant can surge 40%

AT & T 's prospects keep getting better, according to Raymond James. Analyst Frank G. Louthan upgraded shares of AT & T to strong buy from outperform, saying the telecommunications company's return to its core business has improved the stock. "We believe this stronger rating is appropriate given AT & T's simpler story is starting to show up in the numbers," Louthan wrote in a Monday note. "We continue to believe a more focused vision along a simpler line of business creates a solid scenario for share price appreciation, and a solid, total return." The analyst said he expects AT & T will outpace its competitor Verizon over the next few quarters. According to the note, AT & T has more wireless subscriber additions, is growing earnings per share, and expanding margins. Louthan said expectations of an economic downturn has already been built into the telecommunications stocks. "The telcos tend to perform worse than expected in an economic downturn, but much of this has been factored into the name – trading below the 2, 5, and 10-year average P/E despite having a far simpler story today with less cyclical business and better earnings growth than peers," Louthan wrote. "While we still caution investors that telecom stocks may not be the most defensive, the businesses definitely are, and we do not expect weakness in the fundamentals," he continued. The analyst reiterated a $24 price target, implying roughly 40.4% upside from Friday's close at $17.10. Shares of AT & T rose 1% in Monday premarket trading. —CNBC's Michael Bloom contributed to this report.