AT&T still a buy off mega Time Warner deal, analyst says

The $85 billion AT&T (NYSE: T)-Time Warner (NYSE: TWX) deal doesn't change anything about AT&T's appeal, analyst David Burks said Monday.

On Saturday, the two giants announced the mammoth deal , which has the mobile company paying $107.50 per share in cash and stock transaction for Time Warner.

Burks likes AT&T's attractive yield and modest earnings growth, and he thinks the merger could expand the company's growth rate.

"It diversifies from the slow-growing wireless business and it further strengthens the ability of the company to maintain its dividend," the senior analyst for Hilliard Lyons told CNBC's " Power Lunch ."

If the deal is approved, AT&T will also take on a lot of debt.

On Monday, Moody's put AT&T's credit rating on review for a potential downgrade because of that potential debt. The U.S. carrier currently has $119 billion in net debt, and Moody's estimates that it could jump to more than $170 billion if the companies merge.

"We think this deal is going to be difficult for them to digest," Moody's senior credit officer Mark Stodden told "Power Lunch."

The current rating is Baa1, and a possible downgrade will still keep the stock as investment grade.

Stodden noted that AT&T's cash flows, business diversity, reach and breadth is unmatched.

"The company is extremely strong and is buying a great asset. So we don't really think there is a lot of risk of moving to speculative grade," he explained.

However, Moody's is concerned about market access for this amount of debt and the refinancing requirements if the fixed income markets become choppy.

"If for some reason there is some volatility in the fixed income markets, it could be problematic for a balance sheet this large," he said.

Burks is confident AT&T can manage that debt.

"They want to maintain their … investment grade credit ratings and we think they will do what they need to do. And it's potential they might even sell some assets if that were required," he said.

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