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

AT&T T released its first quarter earnings report on April 23. Here’s Morningstar’s take on AT&T’s earnings and stock.

Key Morningstar Metrics for AT&T

• Fair Value Estimate: $26.00
• Morningstar Rating: ★★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of AT&T’s Q1 Earnings

AT&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.

Fair Value Estimate for AT&T

With its 3-star rating, we believe AT&T’s stock is overvalued compared with our long-term fair value estimate of $26 per share. This estimate assumes that AT&T will deliver modest revenue growth and gradually expanding margins over the next several years 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 7.3 times our 2025 EBITDA estimate and a free cash flow yield of about 8% based on management’s 2025 forecast.

In wireless, we expect AT&T will slowly gain market share over the next few years. We believe postpaid revenue per phone customer will grow modestly amid a relatively stable competitive environment, reaching nearly $62 per month in 2029 versus less than $57 in 2024. We estimate AT&T generates around $2 billion in revenue annually from connected devices, such as cars. We model this revenue increasing roughly 30% cumulatively over the next five years as things like edge computing gain adoption, but this estimate is highly uncertain. In total, we expect wireless service revenue to increase 3% annually on average through 2029, at the high end of management’s forecast for 2025-27. We expect wireless EBITDA margins will hold in the low 40% range, as cost-efficiency efforts and benefits from slowing customer growth offset rising network operating costs.

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

Economic Moat Rating

Wireless is AT&T’s most important business. Returns on capital in wireless have eroded somewhat in recent years as the firm has spent heavily on wireless spectrum and invested to put that spectrum to use. We estimate the wireless business produced a return on capital in 2024 slightly above 9%, or about 11% excluding goodwill, modestly higher than our estimate of the firm’s cost of capital. These figures are down from about 10% and 12% in 2018. Over those six years, segment operating income is up 21% cumulatively while the invested capital base has expanded more than 30%, primarily on $40 billion of spectrum purchases.

We expect that wireless returns will remain ahead of AT&T’s cost of capital. Verizon, AT&T, and T-Mobile dominate the US wireless market, collectively claiming about 90% of retail postpaid and prepaid phone customers between them and supplying the network capacity to support most other players. Providing solid nationwide coverage requires heavy fixed investments in wireless spectrum and network infrastructure. While a larger customer base requires incremental investment in network capacity, a significant portion of costs are either fixed or more efficiently absorbed as network utilization reaches optimal levels in more locations.

Read more about AT&T’s economic moat.

Financial Strength

Net debt stood at $119 billion at the end of the first quarter of 2025, putting net leverage at about 2.6 times EBITDA. This load is far higher than the firm has operated under in the past: Immediately before its current capital deployment binge began in 2012 (with a round of heavy share repurchases), AT&T typically carried leverage of around 1.5 times EBITDA. However, the current debt load is still reasonably similar to Verizon and T-Mobile’s.

AT&T’s dividend payout totals about $8 billion annually, down from $15 billion in 2021. The dividend consumed about 50% of free cash flow in 2024 versus more than 80% in 2021. We think the dividend policy makes sense, leaving substantial excess cash to reduce leverage and make network investments, which we believe are vital to AT&T’s long-term health.

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. Regulation and technological change are the primary uncertainties facing AT&T. Wireless and broadband services are often considered necessary for social inclusion, in terms of employment and education. If AT&T’s services are deemed insufficient or overpriced, especially if in response to weak competition, regulators or politicians could step in.

Regulators also control the flow of wireless spectrum into the industry, which has created scarcity in the past, pushing carriers to pay high prices for licenses. We suspect that when large spectrum blocks are made available, such as the 2021 C-band auction, the carriers have felt compelled to bid excessively to keep potential entrants out of the market, especially the cable companies.

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 behind it and a fiber network capable of reaching nearly one-third of the US.
• AT&T has the scale to remain a strong wireless competitor over the long term. With three dominant carriers, industry pricing should be rational going forward.
• Combining wireless and fixed-line networks with new technologies and deep expertise makes AT&T a force in enterprise services.

T Bears Say

• The cost of maintaining dominance in the wireless industry by controlling spectrum has been exceptionally high over the years. AT&T has spent $40 billion since 2020 for licenses with few prospects for incremental revenue.
• Advancing technology will eventually swamp AT&T’s wireless business, enabling a host of firms to enter the market, further commoditizing this 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 Jacqueline Walker.