Should AT&T Shares Represent a Wise Long-Term Financial Commitment?
Man, a year's made quite the turnaround for AT&T (-1.09%). Back in November 2023, the shares hit rock bottom at $15.46, their lowest in a year. But look at it now! Last Friday, it reached a 52-week high of $22.73. This surge is a direct reflection of the growing interest from investors, following AT&T's shift away from its failed bid to establish a media empire.
The stock's up over 30% this year. But here's the question - is now the time to pump some funds into AT&T for a long-term stint?
Customer Winning Streak
One major factor boosting AT&T's stock's comeback is its impressive customer appeal. In the third quarter alone, it added 403,000 subscribers to its postpaid mobile segment, making it the 17th consecutive quarter of growth in this department since John Stankey took over as CEO in 2020.
This customer influx helped bump up its mobile wireless service revenue by 4% annually to a staggering $16.5 billion. This sector forms a whopping 55% of AT&T's total Q3 revenue of $30.2 billion.
Did I mention that AT&T's fiber optic internet service is another revenue-earner? This segment's a strategic priority for Stankey, who described it as part of AT&T's 'converged connectivity' strategy. This means that when customers sign up for either the mobile wireless or fiber optic service, they're increasingly opting for the other service as well.
"This is creating a loop where the success of our fiber business is boosting the market growth and vice versa," said Stankey. In Q3, 40% of fiber customers also subscribed to AT&T's mobile services, up from 38% in 2023.
In the third quarter, 226,000 new customers signed up for AT&T's fiber service, leading to a 6% year-over-year increase in consumer broadband revenue to $2.8 billion. This is the 19th consecutive quarter of net customer additions over 200,000 for the fiber service.
Grappling with Debt
Another factor bolstering AT&T shares is its improved financial health. Prior to Stankey's tenure, the company was saddled with debt because of its heavy spending on media acquisitions, like the $48.5 billion deal for DirecTV. By 2018, the debt had ballooned to an eye-watering $180.8 billion.
But Stankey's leadership changed all that. He offloaded AT&T's media operations to focus on the core telecommunications business. For instance, in 2021, AT&T sold a 30% stake in DirecTV for $7.8 billion to a private equity firm. This September, it sold the remaining 70% stake for $7.6 billion, finally shedding its attempt to become a media conglomerate.
These funds will help bolster AT&T's balance sheet. Its efforts have allowed it to end Q3 with a net-debt-to-adjusted-EBITDA ratio of 2.8, putting it on track to reach a manageable 2.5 or so by mid-2025.
To Buy Or Not to Buy AT&T Shares
Despite its achievements, one of AT&T's products is still on a decline - its wired landline services. As companies evolve to wireless technology, the demand for landlines has dwindled.
This long-term trend pushed AT&T to write off $4.4 billion in 'goodwill' in the third quarter. To keep up with consumer preferences, AT&T is now offering a wireless internet and 5G mobile solution for businesses. Revenue from this new venture grew 4% year-over-year to $2.5 billion in Q3.
With AT&T expanding its new business offerings and maintaining strong growth in consumer mobile and fiber services, it seems to be moving in the right direction. And if there's one compelling reason to invest in AT&T for the long term, it's the dividend, boasting a pending incoming forward yield of 5%.
This dividend serves as a source of passive income. And since AT&T is growing its free cash flow, this dividend looks secure. Through three quarters, its FCF totaled $12.8 billion compared to $10.4 billion in 2023. FCF is an essential indicator of the cash AT&T has for business investments, debt repayment, and dividend payouts.
AT&T has focused on its core operations since the change at the helm, and these businesses are only getting stronger. This, combined with its debt reduction and increasing FCF, makes AT&T look like a shrewd long-term investment.
The stock's impressive 30% growth this year has led some investors to consider pumping funds into AT&T for a long-term stint. This strategy could be financially rewarding, given AT&T's forward yield of 5%, serving as a source of passive income.
AT&T's financial health has significantly improved under Stankey's leadership, with the company managed to end Q3 with a net-debt-to-adjusted-EBITDA ratio of 2.8, indicating its progress towards a more manageable 2.5 ratio by mid-2025.
