Is AT&T stock a buy now?

AT&T (NYSE: T) it has quietly emerged as an impressive comeback story. Compared to the past few challenging years, under pressure from disappointing earnings and weak trends in the wireless sector, the latest results presented an improved outlook. The stock is up 34% over the past year, currently trading at a multi-year high.

Often, in a sudden rally, investors may wonder how much more rising stocks have to offer, or whether it’s too late to intervene. Could AT&T stock be a good addition to your portfolio right now? Let’s explore more reasons to remain bullish on this high-yielding telecom leader.

A strong first half to 2024

It’s been just over two years since AT&T completed one of the biggest restructuring efforts in its history, spinning off WarnerMedia Group in 2022. The deal marked a turning point for the company, moving away from investing in entertainment to- and refocus efforts on telecommunications. strengths.

The new strategy appears to be paying off, and underlying profitability is the big theme for AT&T this year. In the second quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 2.6%, while free cash flow of $4.6 billion increased $0.4 million compared to last year.

Even as the secular decline of the company’s cable segment remains a drag on the top line, the core mobility group and consumer telecom segment are seeing a resurgence of momentum. AT&T benefits from a resilient demand-side macroeconomic backdrop and the impact of gradual price increases implemented in recent years.

In terms of guidance, management is targeting full-year wireless revenue growth in the 3% range, achieving flat subscriber gains and higher average revenue per user (ARPU). The company also expects broadband revenue to exceed 7% in 2024, with AT&T fiber a key growth driver.

An ongoing transition from legacy cable to more advanced broadband infrastructure has created a category of “converged customers” who subscribe to both fiber and wireless services. AT&T sees a big opportunity to bundle its various services as a tailwind for greater profitability in 2025 and beyond.

Why I’m bullish on AT&T

My takeaway when looking at AT&T today as an investment opportunity is that the company has successfully regained its fundamentals. Perhaps the biggest improvement AT&T has undergone is by strengthening its balance sheet. Long plagued by a heavy debt burden, AT&T is managing to unravel with a decline in net debt supported by positive free cash flow.

That momentum is great news for investors tracking AT&T’s 5.4% dividend yield amid growing confidence that the quarterly rate of $0.2775 per share is sustainable. With indications that the Federal Reserve may cut interest rates later this year, AT&T’s industry leader and high yield profile will look even more attractive.

One of the unique aspects of the telecommunications and wireless business is its defensive positioning. For most people, a smartphone with cellular service and internet has become a utility-like necessity. This means that even in a scenario where economic conditions deteriorate, AT&T should continue to generate high-quality cash flow with earnings stability. This could make the stock a winner even in a volatile stock market environment.

I also like AT&T stock for trading at a compelling value of about 6.4 times management’s adjusted EBITDA guidance for 2024 as a ratio of enterprise value to forward EBITDA. In particular, this level represents a reduction compared to Verizon Communications trading at a multiple of 6.6 on the same measure or T-Mobile USA at 9.6. In my view, AT&T offers good value, with an optimistic case that it could see some expansion in its earnings premium as a catalyst for the stock.

T EV to EBITDA data (before) by YCharts.

My prediction for AT&T stock

I think AT&T stock deserves more attention and can work for investors in a diversified portfolio. While it likely won’t be a straight line higher, there’s a good chance the stock can go higher from here, while investors are rewarded with a solid dividend yield. The company’s ability to continue to execute on its strategy should reward shareholders over the long term.

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Dan Victor has no position in any of the shares mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.

Is AT&T stock a buy now? was originally published by The Motley Fool