What a difference a year makes for telecom giant AT&T(NYSE: T). Its stock price rose in recent months, reaching a 52-week high of $19.32 on July 1.
The stock's surge is a reversal from last July's 52-week low of $13.43. Part of the credit for the share price gains is due to analyst upgrades. JPMorgan, Goldman Sachs, and Barclays were among those upgrading AT&T stock this year.
Does this suggest now is the time to pick up shares? To answer that question, let's dive into AT&T's performance to gauge whether the telecom stalwart is a good long-term investment.
AT&T's strengthening financials
The rebound in AT&T's stock is the culmination of a multiyear transformation of the company under CEO John Stankey, who took over the role in the summer of 2020.
At that time, AT&T was drowning in net debt of $152 billion as it spent billions of dollars to build its new 5G wireless network. Fast-forward to 2024, and the storied telecom is on track to financial strength.
The bulk of its 5G infrastructure investment is behind it. At the end of the first quarter, AT&T's net debt was down to $129 billion, and it's on schedule to reach a reasonable net debt-to-adjusted EBITDA ratio (earnings before interest, taxes, depreciation, and amortization) in the 2.5x range by the first half of 2025.
Revenue growth in AT&T's key businesses
In addition, Stankey focused the company on the twin priorities of 5G and fiber optic internet networks. This strategy is paying off.
In Q1, AT&T's mobile services reached revenue of $16 billion, up 3% year over year. This is a key business segment, since it contributed more than half of the conglomerate's $30 billion in Q1 revenue.
AT&T achieved sales growth in its mobile services by acquiring 349,000 postpaid phone subscribers in Q1. Postpaid subscribers are the telecom industry's most valuable customer segment.
Contrast this performance to rival Verizon, which suffered a postpaid phone net loss of 68,000 in Q1. And AT&T's Q1 result marks the 15th straight quarter of postpaid phone net additions.
Not only is the telecom titan capturing mobile phone customers, it's holding on to them. Q1 represented AT&T's lowest first-quarter postpaid phone churn in its history.
Meanwhile, the company's fiber business is growing as well. In Q1, AT&T generated $1.7 billion in fiber revenue, up 20% year over year.
The sales growth is thanks to the addition of more than 1 million fiber subscribers over the past year. This brings its fiber subscriber total to 8.6 million customers. AT&T expects broadband revenue to expand by at least 7% year over year in 2024.
Other factors to consider in evaluating AT&T stock
The revenue growth in its key mobile and fiber businesses, combined with a reduction in 5G capital expenditures, contributed to an increase in the company's free cash flow (FCF). FCF provides insight into the cash available to invest in the business, pay debt obligations, and fund dividends, so it's a critical component to review.
AT&T's Q1 FCF was $3.1 billion, up $2.1 billion year over year. In 2024, the company anticipates generating FCF in the range of $17 billion to $18 billion, up from 2023's $16.8 billion. AT&T's FCF growth is a good sign it's able to continue paying down debt while funding its dividend, which currently yields a hefty 5.9%.
Another factor to consider with an investment in AT&T is valuation. Even though shares hit a 52-week high this month, its price-to-earnings ratio (P/E ratio) was 10 versus Verizon's 15.4 and T-Mobile's 24.4, suggesting AT&T's shares are undervalued compared to its major competitors.
Moreover, the consensus among Wall Street analysts is an overweight rating for AT&T stock with a median share price of $20, indicating a belief in some upside for its shares.
AT&T's revenue growth in its key mobile wireless and fiber businesses, its declining debt burden, rising FCF, and low valuation all make now a good time to buy AT&T stock. And by holding on to shares for the long term, you benefit from the passive income afforded by its robust dividend.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Robert Izquierdo has positions in AT&T, JPMorgan Chase, T-Mobile US, and Verizon Communications. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Barclays Plc, T-Mobile US, and Verizon Communications. The Motley Fool has a disclosure policy.
