AT&T Shares Are Down 11% Since Earnings. Is the Stock a Buy?

AT&T released its third-quarter earnings report on Oct. 21. 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
  : ★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of AT&T’s Q3 Earnings

AT&T’s third-quarter service revenue growth accelerated to 3.8%, or about 3% excluding the Lumen fiber acquisition. Service revenue growth had been bounded between 0%-2% over the past three years. Net debt ticked up sharply on spectrum purchases. Shares dropped more than 6% after the report on concerns about debt and long-term competition from SpaceX.

Why it matters: The quarter was solid operationally. Postpaid wireless customer additions slowed as customer defections remain elevated, stemming from price increases, but broadband customer gains were impressive.

• Revenue per postpaid phone customer jumped 4% from a year ago, and revenue per fiber broadband customer dropped 4%. We don’t believe this divergence is meaningful, given the emphasis on service bundles, and we estimate total revenue per customer relationship is growing at an accelerating rate.
• Net debt hit 3.1 times EBITDA, back to levels after the prior round of spectrum purchases five years ago. With another series of spectrum auctions on the horizon, we’d prefer AT&T scale back share repurchases, which ramped up during the quarter.

The bottom line: We trim our fair value estimate to $26 per share from $27, reflecting higher assumed spectrum costs in the coming years. AT&T claims it doesn’t need spectrum nationwide given its network position, but we still expect it to bid aggressively in future auctions to prevent SpaceX from winning licenses on the cheap.

Long view: Management cut capital spending plans for 2027 and 2028 by about $1 billion annually—about one-third results from the sale of its Mexican business, with the remainder tied to “efficiencies” in the fiber buildout.

• We suspect AT&T is planning to slow its internal fiber network expansion. The firm noted that upstart fiber builders have slowed construction, which reduces its need to build preemptively. Management also acknowledged that it would be interested in a distressed fiber builder at the right price.
• AT&T’s pricing decisions and approach to fiber construction remain rational, in our view, supporting our narrow Morningstar Economic Moat Rating.

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

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 $26 per share, which assumes that AT&T 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.

In wireless, we expect AT&T to gain market share very slowly over the next few years. We believe postpaid revenue per phone customer will grow modestly in a relatively stable competitive environment. However, the recent spurt of competitive intensity since the end of 2024 has made us increasingly cautious with our pricing assumptions. Also, allocating revenue between wireless and broadband services is becoming more difficult as more customers bundle these offerings. We suspect changes in pricing and packaging have caused revenue to shift from broadband to wireless recently, causing a jump in revenue per wireless customer. We assume average revenue per postpaid wireless phone customer grows 2% annually through 2035 after a step-up in 2026.

In total, we expect wireless service revenue to increase a bit more than 3% annually on average through 2030, in line with the medium-term targets management has provided. We expect wireless EBITDA margins to hold in the low 40s, 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

We give AT&T a narrow moat. Wireless is the firm’s most important business. Returns on capital in wireless have eroded in recent years as the company has spent heavily on wireless spectrum and put that spectrum to use. We estimate the wireless business produced a return on capital above 9% in 2025, down from about 10% in 2018, but still modestly higher than our estimate of the company’s cost of capital. Over those seven years, segment operating income increased 25% cumulatively while the invested capital base expanded more than 30%, primarily on $40 billion of spectrum purchases. 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 wireless returns to 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 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 is either fixed or more efficiently absorbed as network utilization reaches optimal levels across more locations.

Read more about AT&T’s economic moat.

Financial Strength

Net debt increased by $22 billion during the third quarter, hitting $149 billion, or about 3.1 times EBITDA. The current debt load is on the high side relative to Verizon’s and T-Mobile’s, and 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.

Management targets net leverage of 2.5 times EBITDA. It met this target at the end of 2025, but with the acquisition of Lumen’s fiber business and the agreement to acquire spectrum from EchoStar, debt has again shot past that level. Management expects to return to its targeted leverage level within three years, but meeting this goal will depend on how much the firm spends to acquire additional wireless spectrum at upcoming FCC auctions.

Management’s leverage target excludes preferred shares and preferred interests in various subsidiaries. In total, these liabilities have a book value of about $21 billion. Payments to preferred shareholders and minority interests are about $1.5 billion annually. The firm has taken steps to improve pension and retirement benefit funding in recent years, but it still faces a deficit.

Given these other obligations and the potential need to invest in additional assets, we’d like to see AT&T prioritize debt reduction more than it has. The firm plans to spend $10 billion repurchasing shares in 2026, with $7.5 billion spent through the first three quarters, consuming most of the free cash flow generated after funding the dividend.

Read more about AT&T’s financial strength.

Risk and Uncertainty

We recently raised our Uncertainty Rating for AT&T to High from Medium, as SpaceX continues to threaten to enter the US wireless market. Competitive intensity, regulation, and technological change are the primary uncertainties facing the firm. SpaceX embodies all three, as it has developed new communications technologies, successfully lobbied regulators, and amassed the resources to compete aggressively in traditional telecom markets if it chooses.

Regulators 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. Recent legislation has directed the Federal Communications Commission to make more spectrum available, and the agency plans to hold an auction in 2027. If nothing else, SpaceX could massively inflate the prices AT&T and the other carriers pay for new licenses.

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. Technology could quickly enhance these efforts. 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 behind it 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 use cases around AI are poised to emerge.

T Bears Say

• The cost of 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 Colin Laidley.