AT&T Earnings: The Wireless Business Is Shifting Somewhat, but Our Long-Term View Is Unchanged

Morningstar’s 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 accelerating revenue growth during the first quarter, as wireless and broadband customer additions remain solid. Total revenue increased 2.0% versus a year ago, with wireless service revenue up 4.1%, the fastest pace since early 2023. Residential broadband revenue was up 9%.

Why it matters: Like Verizon Communications VZ, AT&T’s results showed emerging signs of increasing wireless competitive intensity. Management believes it has adequate flexibility around costs to deliver at least $16 billion of free cash flow in 2025, regardless of how the competitive or economic environment unfolds.

• AT&T added 324,000 net postpaid wireless phone customers during the quarter, similar to a year ago. However, customer defections, or churn, were up sharply. Management previously indicated that more customers would roll off contracts than in 2024, but we suspect competition also played a role.
• With higher churn, AT&T has increased efforts to win new customers. Gross postpaid phone additions were 13% higher than a year ago. Phone upgrades also ticked up, creating cost pressure in the wireless segment, where the segment EBITDA margin dropped to 43% from 43.5% last year.

The bottom line: We maintain our $26 fair value estimate and narrow moat rating for AT&T. We still like the firm’s position, with a solid wireless business and growing fiber network, but we believe Verizon trades at a more attractive valuation.

• AT&T added a record 181,000 net fixed-wireless broadband customers during the quarter, in addition to 261,000 net fiber broadband customers.
• Management also expects to begin repurchasing shares this quarter rather than waiting until the year’s second half, targeting $3 billion for 2025. We believe this move is somewhat premature, as we’d like to see debt leverage, which ended the quarter at 2.6 times EBITDA, move lower.

Between the lines: AT&T echoed Verizon’s comments regarding tariffs, saying that it would need to pass higher phone costs on to customers.