After Earnings, Is AT&T Stock a Buy, a Sell, or Fairly Valued?

AT&T released its second-quarter earnings report on July 22. Here’s Morningstar’s take on AT&T’s earnings and stock.

Key Morningstar Metrics for AT&T

• Fair Value Estimate
  : $27.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Medium

What We Thought of AT&T’s Q2 Earnings

AT&T’s service revenue increased 2.7% in the second quarter, or about 2% excluding the Lumen fiber acquisition. This was the fastest pace in three years, driven by a jump in revenue per wireless customer. Adjusted EBITDA increased 5%, but management maintained full-year expectations at 3%-4% growth.

Why it matters: Competitive intensity in the wireless business appears to be easing. AT&T increased prices in April, but the pace of customer defections, or churn, was roughly flat with a year ago, and the firm added more net postpaid phone customers than a year ago (432,000 versus 401,000).

• Revenue per postpaid phone customer jumped nearly 3% versus the prior quarter to $58 after being stuck at or below $57 for two years. We suspect the allocation of bundle discounts between wireless and broadband partially drove this result.
• Still, with T-Mobile increasing prices on older rate plans in June, the industry seems to be retreating from the promotional intensity of the past 18 months. Residential broadband customer additions were also strong, especially on the fiber network, as AT&T drives bundle penetration.

Long view: Management forcefully reiterated that it has no interest in selling wholesale network capacity to SpaceX. AT&T expects to fill wireless coverage gaps through its partnership with AST SpaceMobile.

The bottom line: We maintain our $27 fair value estimate for narrow-moat AT&T. Telecom valuations have been under pressure, likely caused by enthusiasm around the SpaceX IPO.

• The stock is re-approaching fair value after getting hit by the noise around SpaceX. It still offers good return potential from here, especially for dividend-focused investors, but it isn’t as clearly a buy today.
• We’re torn on AT&T’s decision to accelerate share repurchases this year. We like the firm’s desire to capitalize on the drop in its share price. However, after buying spectrum from EchoStar, management doesn’t expect to reach targeted debt levels for three years. The need to purchase additional wireless spectrum could easily derail debt reduction.

The following are excerpts from Morningstar’s company report on AT&T stock.

Fair Value Estimate for AT&T

With its 4-star rating, we believe AT&T’s stock is moderately undervalued compared with our long-term fair value estimate of $27, which assumes the firm will deliver modest revenue growth and gradually expand margins over the next several years. The firm should benefit as its wireless and fiber network investments pay off, including efforts to retire its legacy copper phone network.

Our fair value estimate implies an enterprise value of about 7 times our 2026 EBITDA estimate and a free cash flow yield of about 8% based on 2025 results, after deducting payments to minority interests. We generally expect AT&T to maintain capital spending near current levels over the next several years.

Read more about AT&T’s fair value estimate.

Economic Moat Rating

We give AT&T a narrow moat. Wireless is AT&T’s most important business, and its returns on capital have eroded in recent years as the company has spent heavily on wireless spectrum. With the acquisition of spectrum from EchoStar, the wireless invested capital base will again expand by about 10% in 2026, diluting the segment return on capital about 1 percentage point, absent any increase in profitability.

We expect that wireless returns will remain ahead of AT&T’s cost of capital. The consolidation across the industry over the past 15 years and the inability of several interested parties, including EchoStar and Comcast, to enter the market using their own networks provides evidence of efficient scale.

Verizon, AT&T, and T-Mobile dominate the US wireless market, accounting for about 90% of retail postpaid and prepaid phone customers and supplying the network capacity to support most other players. The benefits of fixed-cost leverage and the difficulty of providing a differentiated wireless offering create an efficient scale advantage in the wireless industry.

Read more about AT&T’s economic moat.

Financial Strength

Net debt stood at $126 billion at the end of the second quarter, putting net leverage at about 2.7 times EBITDA. The current debt load is still reasonably similar to those of Verizon and T-Mobile, but we still think AT&T would benefit from a more conservative financial position. AT&T’s annual dividend payout totals about $8 billion, down from $15 billion in 2021 before the sale of Warner Media. The current payout is much more maintainable, consuming about 50% of free cash flow in 2025 versus more than 80% in 2021.

Read more about AT&T’s financial strength.

Risk and Uncertainty

Our Medium Uncertainty Rating reflects the volatility we expect AT&T investors will face relative to our global coverage. The level of competitive intensity, regulation, and technological change are the primary uncertainties facing AT&T. Wireless and broadband services are often considered necessary for social inclusion. If AT&T’s services are deemed insufficient or overpriced, regulators or politicians could act to improve consumer welfare.

Wireless standards continue to evolve. The cost to deploy wireless networks could come down to the point where numerous new firms can enter the market. The cable companies are already making attempts to leverage their fixed-line networks to provide limited wireless coverage. While unlikely, in our view, wireless or satellite technology could also remove the need for AT&T’s fixed-line networks, killing returns on its fiber investments.

AT&T’s balance sheet is in better shape today than a couple of years ago, but it still carries a large debt load. The firm has also sold sizable minority stakes in assets or businesses that require quarterly payments. This position could limit strategic flexibility, especially given the company’s commitment to its dividend, or amplify the impact of a downturn in the business on shareholders.

Read more about AT&T’s risk and uncertainty.

T Bulls Say

• Following a period of investment, AT&T will hold a nationwide 5G wireless network with deep spectrum and a fiber network capable of reaching around half of the US population. No carrier can match these assets.
• AT&T has the scale to remain a strong wireless competitor. With three dominant carriers, industry pricing should be rational over the long term.
• Combining wireless and fixed-line networks with new technologies and deep expertise makes AT&T a force in enterprise services, where new AI use cases are poised to emerge.

T Bears Say

• Maintaining dominance in the wireless industry by controlling spectrum has been costly. AT&T has spent more than $60 billion since 2020 on licenses with few prospects for incremental growth.
• Advancing technologies like satellite will eventually swamp AT&T’s business, enabling a host of firms to enter the market, further commoditizing wireless and broadband service.
• AT&T’s debt load will catch up with it. The firm carries far higher leverage than it has historically, and its dividend payout remains high. Prematurely buying back shares will further hamper the balance sheet.

This article was compiled by Irza Waraich.