AT&T Earnings: Steady Progress Continues Despite Elevated Competitive Intensity

Key Morningstar Metrics for AT&T

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

What We Thought of AT&T’s Earnings

AT&T’s T second-quarter revenue increased 3.5% from a year ago, the best pace in several years. Increased sales of wireless phones and growth in fiber broadband drove this result. Management roughly maintained its free cash flow target for 2025, despite expected tax savings from recent legislation.

Why it matters: Increased wireless competition has pushed more customers to switch carriers. This negative-sum activity hasn’t significantly hurt AT&T’s financial performance at this point.

• AT&T added 401,000 net postpaid wireless phone customers during the quarter, comparable with a year ago, but the number of gross additions and customer phone upgrades increased 20%. Wireless segment EBITDA margin declined slightly year over year due to higher customer acquisition costs.
• Consumer fixed-line revenue increased 5.8%. The company’s fiber broadband customer base has expanded 12% over the past year. Although small relative to the wireless business, surging consumer broadband profitability helped maintain AT&T’s consolidated EBITDA margin year over year at 38%.

The bottom line: We maintain our $26 fair value estimate and narrow moat rating for AT&T. We believe the shares are fairly valued and that Verizon is more attractive.

• Management acknowledged that the cost to attract and retain wireless customers has increased and expressed hope that competitive activity will dissipate over the rest of the year, echoing rival Verizon’s comments earlier this week. T-Mobile will report later on July 23.
• AT&T’s ability to earn excess returns on capital depends largely on rational competition. We believe the structure of the US wireless industry enforces long-term competitive discipline.

Between the lines: AT&T expects a level of tax savings similar to Verizon from the extension of bonus depreciation. But AT&T plans to increase investment in its network and pension plans rather than passing these savings through to free cash flow.