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

AT&T released its fourth-quarter earnings report on Jan. 28. Here’s Morningstar’s take on AT&T’s earnings and stock.

Key Morningstar Metrics for AT&T Stock

• Fair Value Estimate: $27.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of AT&T’s Q4 Earnings

AT&T’s fourth-quarter revenue jumped 3.6%, the best pace in four years, primarily on higher smartphone sales. The firm also outlined expectations through 2028, calling for consistent service revenue growth, with improving margins and free cash flow generation.

Why it matters: Increased revenue growth reflects greater wireless competition, not improving business fundamentals, as customers switch carriers more frequently. Core services revenue growth has decelerated, including wireless service revenue growth of 2.4%, below the 3%-4% range over the prior two years.

• AT&T continues to gain postpaid phone customers at a solid clip, adding 421,000 during the quarter, but customer defections (churn) also remain elevated, up 18% year over year. Revenue per postpaid phone customer declined 0.2% year over year.
• Profitability and cash flow were strong, though the accounting for smartphone sales inflated EBITDA (up 4.1% year over year). Most of the benefits from AT&T’s cost-savings efforts have been reinvested in customer acquisition and other initiatives.

The bottom line: We don’t expect to materially change our fair value estimate. AT&T introduced new segment reporting to call attention to its growing wireless and fiber businesses and highlight the cost savings it should enjoy as its copper-based networks are shut down.

• We built cost savings from the copper shutdown after management highlighted this area in 2024.
• AT&T expects wireless services revenue to grow 2%-3% annually over the next three years, the same 3-year range it gave a year ago. This consistency reflects confidence that wireless competition will remain stable, a view we share and a key element behind our narrow moat rating.

Long view: Management downplayed the potential for heavy additional wireless spectrum investments, saying that the carriers now mostly have targeted needs. We share this view that spectrum pricing will be more rational going forward.

Fair Value Estimate for AT&T

With its 4-star rating, we believe AT&T’s stock is moderately undervalued compared with our long-term fair value estimate of $27 per share, which assumes that AT&T will deliver modest revenue growth and gradually expand margins over the next several years. The firm should benefit 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 7.0 times our 2026 EBITDA estimate and a free cash flow yield of about 8% based on 2025 results, after deducting payments to minority interests.

In wireless, we expect AT&T to gain market share slowly over the next few years. We believe postpaid revenue per phone customer will grow modestly in a relatively stable competitive environment. However, with the recent spurt of competitive intensity continuing and management indicating it will lean more on customer growth than pricing to drive results, we continue to trim our pricing estimates modestly. We assume the average revenue per postpaid wireless phone customer remains below $60 per month in 2029, down from our $62 estimate a year ago.

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 above 9% in 2025, down from about 10% in 2018, but still modestly higher than our estimate of the company’s cost of capital. Over those seven years, segment operating income increased 25% cumulatively while the invested capital base expanded more than 30%, primarily on $40 billion of spectrum purchases. With the acquisition of spectrum from EchoStar, the wireless invested capital base will again expand by about 10% in 2026, diluting the segment return on capital about 1 percentage point, absent any increase in profitability.

Read more about AT&T’s economic moat.

Financial Strength

Net debt stood at $118 billion at the end of 2025, putting net leverage at about 2.5 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 those of Verizon and T-Mobile.

AT&T’s annual dividend payout totals about $8 billion, down from $15 billion in 2021 prior to the sale of Warner Media. The current payout is much more maintainable, consuming about 50% of free cash flow in 2025 versus more than 80% in 2021.

Management targets net leverage of 2.5 times EBITDA. This target excludes preferred shares and preferred interests in various subsidiaries. In total, these liabilities have a book value of about $21 billion. Payments to preferred shareholders and minority interests are about $1.5 billion annually. The firm has taken steps to improve pension and retirement benefit funding in recent years, but it still faces a deficit. Given these other obligations, we’d like to see AT&T move net leverage even lower than the 2.5 times EBITDA target, closer to the levels it carried a decade ago.

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.

Wireless standards continue to evolve. The cost to deploy wireless networks could come down to the point where numerous new firms can enter the market. The cable companies are already making attempts to leverage their fixed-line networks to provide limited wireless coverage. Technology could quickly enhance these efforts. While unlikely, in our view, wireless technology could also remove the need for AT&T’s fixed-line networks, killing returns on its fiber investments.

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 costly. AT&T has spent more than $60 billion since 2020 for licenses with few prospects for incremental revenue.
• Advancing technologies like satellite will eventually swamp AT&T’s business, enabling a host of firms to enter the market, further commoditizing wireless and broadband servic
• 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 Rachel Schlueter.