AT&T Shares Have Sunk Despite a Subscriber Surge. Time to Buy the Dip?

AT&T reported robust Q2 results, with total revenue up 3.5% to $30.8 billion and adjusted EPS of $0.54, surpassing expectations and driven by strong subscriber additions across mobility and fiber. However, investor disappointment over the company's unchanged full-year guidance, particularly after rival Verizon raised its outlook, led to a stock pullback. Strategically, AT&T is accelerating its fiber network expansion, aiming to double locations by 2030, a move supported by new tax provisions crucial for long-term competitiveness.

Analysis

AT&T's second-quarter results present a mixed signal for investors, characterized by strong operational execution overshadowed by conservative forward-looking guidance. The company surpassed Wall Street expectations with adjusted EPS of $0.54 on revenue of $30.8 billion, driven by robust performance in its core mobility and consumer broadband segments. Mobility revenue grew 6.7% to $21.8 billion, fueled by 479,000 retail postpaid subscriber additions, while broadband ARPU climbed 7.5% to $71.16 on the back of 243,000 new fiber subscribers. However, the market reacted negatively to the company's decision to maintain its full-year adjusted EPS guidance of $1.97 to $2.07, a notable point of disappointment, especially after rival Verizon had recently raised its outlook. This conservatism is compounded by a significant drag from the business wireline segment, where revenue fell 9.3% and the division swung from a $102 million operating profit to a $201 million loss. Strategically, AT&T is leveraging new tax provisions to accelerate its fiber network investment, aiming to double its locations by 2030 to counter increased competition, but this long-term growth initiative comes at a cost, with projected capex of $23-$24 billion annually for 2026 and 2027. Despite a healthy free cash flow of $4.4 billion in the quarter, the stock's valuation, at a forward P/E of 13.5, remains at a premium to Verizon's multiple of 9.

Key Decisions for Investors

• Investors should weigh the company's strong current subscriber growth and solid dividend coverage against the negative sentiment driven by its failure to raise guidance and the stock's premium valuation relative to its primary competitor.
• Monitor the execution of the accelerated fiber expansion strategy, as its success is critical to justifying the high capital expenditures and competing effectively against a potentially stronger Verizon post its Frontier acquisition.
• Closely track the performance of the business wireline segment, as its $201 million operating loss is a significant headwind to profitability that needs to be addressed to support future earnings growth.
• Given the valuation gap and differing guidance revisions, consider a relative value analysis against Verizon, which currently presents a lower forward P/E multiple and a higher dividend yield.