AT&T Earnings: Competition Remains Intense, but Management’s Outlook Points to Stability

Key Morningstar Metrics for AT&T

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

What We Thought of AT&T’s Earnings

AT&T’s T 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 3.0%-4.0% 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 $26 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.