This report was generated using published research from our Communications team led by Sector Head Andrew Freedman. If you want to access more Communications research, CLICK HERE.
COMPANY DESCRIPTION:
AT&T (T) is a global telecommunications leader providing wireless, broadband, and video services. Renowned for its expansive 5G and fiber networks, AT&T is committed to delivering seamless connectivity and innovative solutions to consumers and businesses worldwide.
KEY CATALYSTS:
5G and Fiber Expansion: AT&T’s 5G network now covers over 210 million people, and its fiber network continues to grow, with 1.1 million net additions in 2023. Furthermore, AT&T added 1.74M postpaid phone subscribers in 2023, only trailing T-Mobile and Charter Communications. This robust infrastructure expansion and customer growth supports revenue growth and customer demand satisfaction. Additionally, AT&T is increasingly moving into Fixed Wireless Access, adding 93K subscribers in 2023 and 110K in 1Q24 to bring them to a total of 203K FWA subs. While they are a late entrant in the FWA space compared to VZ and TMUS, it is a flexible and fast-growing division of broadband seeing wide adoption in the US right now.
Revenue and Subscriber Growth: Mobility service revenues increased by 2.7% in 2023, with strong ARPU growth and low churn rates. Broadband revenue grew by 8.1%, driven by a 26.6% increase in AT&T Fiber revenue.
Cost Savings: Achieving over $6 billion in cost savings by mid-2023, AT&T is on track to save an additional $2 billion by mid-2026. These efficiencies enhance profitability and support margin growth.
Deleveraging Commitment: Despite a challenging Q1 2023, AT&T remains focused on reducing debt, with management confident in achieving $16 billion or more in free cash flow this year.
FINANCIAL ANALYSIS:
AT&T reported $32.0 billion in Q1 2023 revenues, up 2.2% year-over-year, and Adjusted EBITDA of $43.4M, up 4.7% year-over-year – consistent with full year guidance. Free cash flow was $1.0 billion. Total wireless net additions of 5.15 million exceeded estimates, indicating strong demand.
For 2024, AT&T projects wireless service revenue growth of 3%, broadband revenue growth of 7%, and adjusted EBITDA growth of 3%. Capital investments are forecasted at $21-$22 billion, with free cash flow expected between $17-$18 billion. Adjusted EPS is anticipated to be $2.15 to $2.25.
CONCLUSION:
We like AT&T’s focus on fiber expansion and 5G, adding to their continued growth. AT&T’s robust business positions them well in an ever-changing wireless and broadband market. New dynamics around Fixed Wireless, Fiber Optic Internet, and the end of the Affordable Connectivity Program have caused concerns for traditional cable companies, but AT&T’s consistent results and diverse range of products positions them well to capitalize on emerging trends. The TAIL duration (3 years or less) outlook looks strong. Buy the stock.
