Source: PaxForex Premium Analytics Portal, Fundamental Insight
What a difference a year makes for telecom giant AT&T. Its stock price has surged in recent months, hitting a 52-week high of $19.32 on July 1.
This upward trend is a stark contrast to last July's 52-week low of $13.43. A significant factor in this increase is analyst upgrades, with JPMorgan, Goldman Sachs, and Barclays among those raising their ratings on AT&T stock this year.
The stock's rebound is the result of a multiyear transformation under CEO John Stankey, who took the helm in the summer of 2020.
Back then, AT&T was burdened with $152 billion in net debt due to its massive investment in building a new 5G wireless network. Fast forward to 2024, and the company is on a path to financial stability.
Most of its 5G infrastructure spending is now behind it. By the end of the first quarter, AT&T's net debt had decreased to $129 billion, and it is on track to achieve a net debt-to-adjusted EBITDA ratio in the 2.5x range by the first half of 2025.
Stankey's focus on 5G and fiber optic internet networks is yielding results.
In the first quarter, AT&T's mobile services generated $16 billion in revenue, a 3% increase year over year. This segment is crucial, contributing over half of the company's $30 billion Q1 revenue.
The growth in mobile services was driven by the addition of 349,000 postpaid phone subscribers in Q1, the telecom industry's most valuable customer segment.
In contrast, competitor Verizon experienced a net loss of 68,000 postpaid phone subscribers in Q1. AT&T's Q1 performance marks the 15th consecutive quarter of net postpaid phone additions.
Not only is AT&T attracting new mobile phone customers, but it's also retaining them. Q1 saw the lowest first-quarter postpaid phone churn rate in AT&T's history.
Meanwhile, the company's fiber business is also expanding. In Q1, AT&T's fiber revenue reached $1.7 billion, up 20% year over year.
This growth is due to the addition of over 1 million fiber subscribers in the past year, bringing the total to 8.6 million. AT&T expects broadband revenue to grow by at least 7% year over year in 2024.
Does this mean it's a good time to buy shares? To determine that, let's examine AT&T's performance to assess if it is a solid long-term investment.
The revenue growth in AT&T's key mobile and fiber businesses, along with reduced 5G capital expenditures, has boosted the company's free cash flow (FCF). FCF is a vital metric as it reflects the cash available for reinvestment, debt repayment, and dividend payouts.
In Q1, AT&T reported an FCF of $3.1 billion, a $2.1 billion increase year over year. The company expects to generate FCF between $17 billion and $18 billion in 2024, up from $16.8 billion in 2023. This growth in FCF indicates that AT&T can continue reducing its debt while maintaining its dividend, which currently offers a substantial 5.9% yield.
Valuation is another critical factor for potential investors. Despite reaching a 52-week high recently, AT&T's price-to-earnings (P/E) ratio stands at 10, compared to Verizon's 15.4 and T-Mobile's 24.4, suggesting that AT&T shares may be undervalued relative to its main competitors.
Additionally, Wall Street analysts generally rate AT&T stock as overweight, with a median share price target of $20, implying some potential for further price appreciation.
Considering AT&T's revenue growth in its crucial mobile wireless and fiber sectors, its decreasing debt, increasing FCF, and attractive valuation, now may be a favorable time to invest in AT&T stock. Long-term investors can also benefit from the steady income provided by its strong dividend.
As long as the price is above 18.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 18.72
- Take Profit 1: 19.60
- Take Profit 2: 20.60
Alternative scenario:
If the level of 18.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 18.00
- Take Profit 1: 17.00
- Take Profit 2: 16.00
