Twitter (TWTR) buyout speculation continues to run lukewarm at best, but an investment bank has brought another possible buyer into the speculation ring: AT&T (T).
"It could make sense, but it would be an expensive acquisition and we do not have good insight as to how serious AT&T management is with respect to owning Twitter," Mizuho Securities analyst Neil Doshi wrote in a research note Wednesday in which he downgraded Twitter stock to underperform.
To be sure, though, Doshi doesn't think an acquisition by anyone makes a real lot of sense at Twitter's valuation. Looking at all the possible names that have emerged, he singled out three. "Salesforce (CRM), Alphabet (GOOGL) and AT&T emerge as modest possibilities, but that is about it," he said.
Further, he said "only Alphabet makes sense from a strategic perspective."
IBD'S TAKE: Alphabet is a huge company, which in general makes for a stock that is less volatile than small stocks. Alphabet has been near a breakout, and it's a member of the current IBD Big Cap 20 list of top-performing large-cap stocks.
Speculation on other companies at least semiseriously kicking the Twitter tires include Verizon Communications (VZ), Walt Disney (DIS) and Microsoft (MSFT). But Doshi wrote that "much of this speculation seems unfounded in practicality, strategic vision and financial consideration."
Moreover, he wrote that "the stock is overvalued as business fundamentals have deteriorated significantly over the past 12 months."
Looking at the stock price using a value-to-profitability measurement called EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization), Doshi says Twitter trades near 16 times its 2017 EV/EBITDA. But he says Microsoft is in the process of buying LinkedIn (LNKD) for $26.2 billion, or 20 times EV/EBITDA, but it's growing much faster in all respects than is Twitter. And Verizon is paying $4.8 billion, or six times EV/EBITDA for the core business of Yahoo (YHOO), which is growing almost as fast as Twitter in many respects.
Doshi has a price target of 15 on Twitter stock, which he says implies a 9.5 times 2017 EV/EBITDA.
Twitter stock fell 3.2%, to 22.96, in the stock market today, but it's up 45% since reporting weak Q2 earnings that sparked the latest round of buyout rumors.
That price gives Twitter a market cap of more than $16 billion. Some reports have said Twitter is looking for a price closer to $25 billion.
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