At $15, AT&T Stock Appears Oversold

AT&T stock stock has had a tough year so far, declining by over 16% year-to-date. AT&T’s first-quarter earnings were weaker than expected, with the company’s subscriber growth slowing with the company adding 424,000 postpaid phone subscribers, down from 691,000 in the year-ago quarter, with cash flows also coming in weaker than expected. The company has also guided that it anticipates a decline in postpaid phone subscriber additions in the second quarter. There are also concerns that competition could mount in the wireless sector. While pay-TV player Dish is building out its own 5G network, there have also been reports that Amazon
AMZN
has been in talks with multiple operators to potentially offer low-cost, or even free, wireless services for its Prime members. This could hurt wireless players, who have invested considerably in building out their 5G networks. The high-interest rate environment is also likely to impact AT&T stock, which has about $138 billion in debt. Higher rates also tend to impact stocks with a higher dividend yield such as AT&T.

So does AT&T stock look attractive at current levels following the recent correction? We think it does. AT&T trades at just about 6.5x consensus 2023 earnings, well below historical levels. The company’s dividend yield also stands at a solid 7%. Cash flows are also projected at $16 billion or more for this year, with the company looking to slash about $6 billion in operational costs this year. Moreover, we think that AT&T should be able to drive profits higher in the long term as the expensive build-out of its 5G network winds down, with revenues and margins benefiting from subscribers opting for more premium plans. AT&T’s fiber broadband operations have also been expanding, with the company adding 272,000 fiber net additions over Q1. Although the U.S. economy faces some headwinds, wireless data, and telecom services, have become essential to customers, meaning that AT&T is unlikely to see a major impact on its financials. We remain positive on AT&T stock with a $23 price estimate, which is well ahead of the current market price. See our analysis on AT&T Valuation for more details on what’s driving our price estimate for AT&T. For more details on AT&T’s key revenue streams and check out our analysis of AT&T Revenues: How Does T Make Money?

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