AT&T Earnings: Modest Growth Should Offset Higher Taxes and Lower DirecTV Distributions In 2024

Key Morningstar Metrics for AT&T

• Fair Value Estimate: $23.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of AT&T’s Earnings

AT&T’s T fourth-quarter results and outlook for 2024 were generally consistent with our expectations, and we are maintaining our $23 fair value estimate. Free cash flow, per management’s definition, hit $16.7 billion in 2023, exceeding the increased forecast the firm provided last quarter. The company expects to generate $17 billion-$18 billion of free cash flow in 2024, with capital investment declining around $2 billion versus 2023. While management expects the business to grow about 3% during the year, the firm faces higher cash taxes and declining cash flow from the DirecTV joint venture—well-established headwinds it will face over the next couple of years.

Net postpaid wireless phone customer additions totaled 526,000 during the quarter, down from 656,000 a year ago but still making for the best quarter of 2023. AT&T continues to lose some ground in attracting new customers, especially against Verizon’s VZ revitalized marketing efforts. But customer retention remains strong, with postpaid churn flat year over year, and we suspect AT&T will shift some tactics to improve its brand messaging, which we think has grown a bit stale. Importantly, management continues to emphasize the need to remain disciplined with its promotional efforts and expects rivals to do the same.

Revenue per postpaid wireless phone customer increased 1.4% compared with the prior-year quarter, accelerating slightly from the previous quarter. Wireless service revenue grew 3.9% versus the same quarter a year ago. The pace at which customers upgrade their phones continues to slow but appears to be bottoming out, diminishing this source of margin expansion. Cost-cutting and slower customer growth still pushed wireless profitability higher, with the segment’s EBITDA margin expanding half of a percentage point year over year to 37.4%. For the full year, wireless EBITDA increased 7.4% versus 2022. This pace will likely moderate in 2024.