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Stock Analyst Update

AT&T Continues to Post Solid Customer Growth During Q1

Our fair value estimate remains $36 per share.

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AT&T’s (T) push to add customers showed during the first quarter, with solid wireless, broadband, and HBO Max gains. The firm also increased network investment plans for the year, though it did so in a way (using vendor financing) that will cause reported capital spending to decline somewhat, allowing management to maintain its $26 billion free cash flow target. AT&T stressed that it is trying to avoid overemphasizing financial metrics to instead make prudent long-term investments. The increased spending appears to be going into the wireless network to ensure that the firm takes full advantage of the C-band spectrum deployment, doing other work at the same time. Our fair value estimate remains $36, and we believe the stock is attractive. 

AT&T pulled in 2.1 million gross postpaid wireless phone customers during the quarter, up about 15% from a year ago and topping Verizon (VZ), likely for the first time in a decade. Customer defections also declined sharply. As a result, AT&T added 595,000 net postpaid phone customers, also its best start to a year in a decade. However, revenue per customer continues to decline amid aggressive promotional efforts, down 2.8% year over year, which will likely prove the worst of the three major U.S. carriers. Total wireless service revenue increased 0.6% year over year, the best result since the start of the pandemic, and management still expects growth will accelerate through the year, implying stable pricing from here. In addition, wireless segment EBITDA increased slightly versus a year ago, despite heavy customer additions and phone upgrades.

Warner added 2.7 million net new domestic HBO Max customers during the quarter, taking the total to 44.2 million. We expect the service to maintain solid momentum through the year as more first-run movies are released. Total Warner revenue increased 9.8% year over year, and segment EBITDA was roughly flat despite a nearly $900 million increase in content spending.

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Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.