Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
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 USD 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 USD 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.
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