Why AT&T Stock is a Buy Right Now

It’s been a long time. Telecom titan shares AT&T (T 0.71%) they finally reversed course after staying below $20 per share for some time. In fact, the stock has been falling and hit a 52-week low around $14 last August.

Since then, AT&T’s financial performance has demonstrated that the company is on a positive trajectory. Its shares began to rise, hitting a 52-week high of $19.99 in August. Shares remain close to this level at the time of writing.

Given its rising stock price, is AT&T a buy now? Absolute. Here are some of the reasons why the telecom veteran is a worthwhile long-term investment.

AT&T’s top business growth

One factor that makes AT&T a compelling investment is growth in its two key businesses: mobile phone services and fiber-optic Internet. When John Stankey took over as CEO in the summer of 2020, he focused the company on these areas and divested businesses that weren’t core to the company’s telecom roots.

Now, AT&T’s multi-year transformation is complete, and its two key businesses are growing both customers and revenue. For example, in Q2, AT&T increased its postpaid subscribers, the telecom industry’s most valuable customers, from 70.3 million in the year-ago period to 71.9 million.

As a result, Q2 mobile service revenue rose 3.4% year-over-year to $16.3 billion. That part of AT&T’s operations brought in more than half of its $30 billion in revenue in Q2.

AT&T is also expanding its fiber-optic Internet customers. Fiber subscribers totaled 8.8 million in Q2, up from 7.7 million in the year-ago period. This growth allowed Q2 fiber revenue to grow 18% year-over-year to $1.8 billion.

Cell phone service and fiber internet are AT&T’s focus because they feed off each other. For example, in Q2 last year, 38% of fiber customers also purchased mobile services from the telecom giant. This percentage increased to 40% in Q2 this year. As Stankey described the trend, “Where we have fiber, we win.”

Increasing financial strength of AT&T

When Stankey took over as CEO, AT&T was in debt, which was a factor in its deteriorating stock price. Under Stankey, the company reduced both its operating costs and its debt.

In Q2, AT&T reduced its long-term debt by $2.2 billion, resulting in net debt of $127 billion. While this balance is still substantial, AT&T is committed to achieving a reasonable ratio of net debt to adjusted EBITDA in the 2.5 range by the first half of 2025.

Moreover, AT&T is looking to achieve more than $2 billion in savings by 2026. Its year-to-date savings helped AT&T increase free cash flow (FCF) in the second quarter to $4.6 billion from 4, 2 billion dollars during the previous year.

The company expects to generate at least $17 billion in FCF this year, an improvement over 2023 FCF of $16.8 billion. FCF is an important measure that provides insight into the cash available to invest in the business, fund dividends and pay liabilities.

With FCF rising and debt falling, AT&T is positioned to maintain its hefty dividend, another key reason to own the stock. Although the company hasn’t increased its dividend in the last few years, it still has an attractive 5.6% yield at the current share price. It is a reliable source of passive income as the company has a long track record of paying dividends dating back to 1984.

Valuation and other reasons to invest

AT&T’s recent performance has boosted its stock price, but the stock remains undervalued. When looking at the company’s price-to-earnings (P/E) ratio, commonly used to value stocks, AT&T is the lowest compared to its main rivals in the telecommunications industry, Verizon and T-Mobile. For P/E, lower is better because it means you’re paying less for a portion of the earnings.

Data by YCharts.

AT&T’s low P/E multiple contributed to the consensus among Wall Street analysts of an overweight rating on AT&T stock, with a median price target of $22, which is 12% above where the stock has been they closed on tuesday.

Another attractive attribute of AT&T is its innovative efforts to harness the potential of its 5G wireless network. It has agreements with car manufacturers such as I see and Rivianto provide wireless internet for their vehicles.

AT&T is also working to provide wireless phone service via satellite, which would help attract customers in rural and remote areas.

Continued growth in its core businesses, steadily improving debt balance and free cash flow, reliable dividend payments, and undervalued stock combine to make AT&T stock a good long-term buy and investment.