After Earnings, Is AT&T Stock a Buy, a Sell, or Fairly Valued?

AT&T released its third-quarter earnings report on Wednesday, Oct. 22. Here’s Morningstar’s take on AT&T’s earnings and stock.

Key Morningstar Metrics for AT&T

• Fair Value Estimate: $26.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of AT&T’s Q3 Earnings

AT&T delivered 1.6% revenue growth in the quarter, decelerating from the first half of the year due to weakening wireless growth. Gradual adjusted EBITDA margin expansion continues as AT&T eliminates legacy costs, especially in fixed-line segments. Management maintained its full-year outlook.

Why it matters: Wireless competition remains elevated, but AT&T continues to perform relatively well. With new CEOs taking over at Verizon and T-Mobile, uncertainty is heightened, but we don’t expect the long-term competitive dynamics to change materially.

• Multiple wireless metrics showed competitive stress. Postpaid phone customer disconnects increased 20% year over year, and revenue per customer failed to grow. But AT&T also attracted more customers from rivals, keeping net additions roughly flat compared with a year ago.
• Verizon may ratchet up promotional activity to placate investors who want to see stronger growth, but AT&T has clearly demonstrated that it will defend market share. We expect the carriers to prioritize long-term industry health over short-lived small share shifts.

The bottom line: We maintain our $26 fair value estimate and narrow moat rating on AT&T. We believe the shares remain fairly valued and that Verizon is more attractive.

• AT&T continues to invest heavily, with capital spending of at least $22 billion in 2025 (18% of revenue), the $23 billion EchoStar spectrum acquisition, and aggressive network expansion when the Lumen deal closes. Its ability to earn excess returns on capital depends on rational competition.
• AT&T claims wireless and broadband revenue per customer is under pressure due to success with lower-end customers and bundle discounts. While perhaps true at the margin, we still expect solid growth in these metrics over time, at least matching inflation.

Key stats: AT&T returned more than 70% of free cash flow to shareholders. We still would prefer the firm further reduce leverage rather than accelerate repurchases.

Fair Value Estimate for AT&T Stock

With its 3-star rating, we believe AT&T’s stock is fairly valued compared with our long-term fair value estimate of $26, which assumes AT&T will deliver modest revenue growth and gradually expand margins over the next several years. This is expected as its wireless and fiber network investments pay off, including efforts to retire its legacy copper phone network. Our fair value estimate implies an enterprise value of 7.2 times our 2025 EBITDA estimate and a free cash flow yield of about 8% based on management’s 2025 forecast.

Read more about AT&T’s fair value estimate.

Economic Moat Rating

Wireless is AT&T’s most important business. Returns on capital in wireless have eroded somewhat in recent years as the company has spent heavily on wireless spectrum and put that spectrum to use. We estimate the wireless business produced a return on capital in 2024 slightly above 9%, down from about 10% in 2018 but still modestly higher than our estimate of the company’s cost of capital. Over those six years, segment operating income increased 21% cumulatively while the invested capital base expanded more than 30%, primarily on $40 billion of spectrum purchases.

Read more about AT&T’s economic moat.

Financial Strength

Net debt stood at $119 billion at the end of the third quarter, putting net leverage at about 2.6 times EBITDA. This load is far higher than the company has operated under in the past. AT&T typically carried leverage of around 1.5 times EBITDA before 2012, when it instituted a large share buyback. However, the current debt load is still reasonably similar to Verizon’s and T-Mobile’s.

Read more about AT&T’s financial strength.

Risk and Uncertainty

Our Medium Uncertainty Rating reflects the volatility we expect AT&T investors will face relative to our global coverage. The level of competitive intensity, regulation, and technological change is the primary uncertainty facing AT&T. We expect the major US telecom firms to approach competition rationally, but predicting behavior in the face of market pressures is difficult.

Read more about AT&T’s risk and uncertainty.

T Bulls Say

• Following a period of investment, AT&T will hold a nationwide 5G wireless network with deep spectrum behind it and a fiber network capable of reaching around half of the US population. No other carrier can match these assets.
• AT&T has the scale to remain a strong wireless competitor over the long term. With three dominant carriers, industry pricing should be rational over the long term.
• Combining wireless and fixed-line networks with new technologies and deep expertise makes AT&T a force in enterprise services, where new use cases around AI are primed to emerge.

T Bears Say

• The cost of maintaining dominance in the wireless industry by controlling spectrum has been exceptionally. AT&T has spent more than $60 billion since 2020 for licenses with few prospects for incremental revenue.
• Advancing technology will eventually swamp AT&T’s business, enabling a host of firms to enter the market, further commoditizing wireless and broadband service.
• AT&T’s debt load will catch up with it. The firm carries far higher leverage than it has historically, and its dividend payout remains high. Prematurely buying back shares will further hamper the balance sheet.

This article was compiled by Frank Lee.