AT&T Earnings: Steady Wireless and Broadband Customer Gains Drive Consistent Results

Key Morningstar Metrics for AT&T

• Fair Value Estimate: $23.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of AT&T’s Earnings

AT&T’s T third-quarter revenue declined 0.5% year over year as lower phone sales, currency movements, and a weak enterprise business offset solid growth in wireless services (4%) and consumer broadband (6%). Adjusted EBITDA margin expanded more than 1 percentage point versus a year ago to 38.3%.

Why it matters: AT&T’s core wireless and consumer broadband businesses continue to post stable results. The firm added 403,000 net postpaid wireless phone customers and 226,000 fiber broadband customers during the quarter, both down from a year ago but in line with recent trends.

• Wireless customer retention remains excellent. Postpaid phone churn (the rate of customer defections) was slightly lower year over year and likely the best among the three major US carriers.
• AT&T isn’t buying loyalty with excessive promotions, in our view. The pace of phone upgrades continues to drop despite enthusiasm around the latest iPhone. Average revenue per postpaid phone customer increased 1.6% year over year, in line with recent performance.

The bottom line: We maintain our fair value estimate of $23 per share and believe AT&T stock is nearing an appropriate price. We think Verizon Communications VZ trades at a bit more attractive valuation.

• Our narrow moat rating for AT&T largely reflects a favorable US wireless industry structure. We expect the firm to gradually gain market share as it rationally competes against Verizon and T-Mobile TMUS.

Between the lines: The fixed-line enterprise services business, which accounts for about 15% of revenue, continues to disappoint, with revenue down 12% year over year. We’d still like more transparency around the revenue sources in this segment.

Coming up: AT&T will outline its fiber ambitions at an analyst day on Dec. 3. Its network already passes 28 million homes and businesses, near where Verizon hopes to reach in 2028 with its Frontier acquisition. We expect AT&T will look to hit 40 million-50 million locations with help from joint ventures.