AT&T: Growth Is Picking Up Into Q3, Yet The Shares Still Trade Too Cheaply

AT&T reported Q2 adjusted EPS growth of 20.4% year over year, service revenue growth nearly double Q1’s pace, and free cash flow above guidance. Management reaffirmed double-digit EPS growth through 2028 and accelerated planned 2026 buybacks to $10B; the company also cited a well-covered dividend. The shares are described as trading at 10.37x 2026 earnings with a 4.58% forward yield.

Analysis

The key underwriting question is the quality of the EPS acceleration, not the headline multiple: if growth is mainly from buybacks or temporary cost/tax effects, the low valuation may be a value trap rather than a rerating setup. Verify organic service-revenue trends, operating performance, free cash flow after capital spending, and debt reduction alongside repurchase execution. Buybacks support per-share growth, but diverting cash from deleveraging could limit multiple expansion and leave equity more exposed to rates. Over the next 1–3 months, the next results and any change in guidance or capital-return pace are the main credibility tests; over 6–18 months, sustained customer economics and disciplined investment matter more than the stated yield. A rate rise, aggressive competitor pricing, or higher-than-expected network investment could pressure both cash generation and the bond-proxy valuation. The contrarian risk is treating a low earnings multiple as proof of mispricing before establishing that the growth is durable and cash-backed.

Key Decisions for Investors

• Consider a modest, staged long in T rather than buying solely on the yield or headline multiple. Add only if subsequent reporting confirms service-revenue momentum and free cash flow after capital spending supports both the dividend and planned repurchases.
• Use the next earnings release as the near-term catalyst check: track organic service revenue, operating performance, free cash flow, net debt, and actual buyback execution. Treat guidance reaffirmation without supporting cash-flow evidence as insufficient confirmation.
• Falsify the thesis if management reduces its growth or capital-return outlook, service trends weaken, or free cash flow after investment no longer covers distributions and repurchases without slowing debt reduction.
• Keep position sizing sensitive to interest rates and competitive pricing: a material rise in long-term yields or signs of customer losses/promotional pressure could outweigh the income cushion and delay any valuation rerating.