AT&T Earnings: Increased Competition Continues to Chip Away at Profitability

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 Earnings

AT&T T delivered 1.6% third-quarter revenue growth, 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.