AT&T, Inc. T has declined 7.8% over the past six months compared to the Wireless National industry’s decline of 10%. The stock has underperformed compared to the Zacks Computer & Technology sector and the S&P 500’s growth during this period.
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The company has underperformed its peers like Verizon Communications Inc. VZ but outperformed T-Mobile US, Inc. TMUS. Verizon has declined 7.1%, while TMUS has decreased 15.3% during this period.
Major Challenges for AT&T
The company continues to face challenges in the Business Wireline business. In the third quarter, its revenues declined 7.8% year over year, while EBITDA declined 13% year over year. Lower demand for legacy voice and data services continues to impact net sales. Per our estimate, the company expects to report $17.48 billion in revenues, indicating a 7.1% year-over-year decline.
AT&T usually witnesses a lower level of new connections during holiday seasons. Management expects to see lower fiber net adds in the fourth quarter owing to this factor.
In a highly saturated U.S. wireless market, the spectrum crunch has become a major issue. Most of the carriers are finding it increasingly difficult to manage surging mobile data traffic. Growing competition from other major telecom players, such as Verizon and T-Mobile, is driving up the customer acquisition expenses.
Key Growth Drivers for T
AT&T is benefiting from solid wireless traction and customer additions. Healthy subscriber gains drove service revenues in the communication segment. The company recorded 328,000 post-paid net additions in Q3. Solid growth in the fiber broadband business is propelling growth in the Consumer Wireline business. AT&T recorded net fiber additions of 288,000, while Internet Air added 270,000 subscribers during the quarter. The company remains on track to reach 50 million customer locations by the end of 2030.
Per Grand View Research, the U.S. fiber broadband market is expected to grow at a 7.5% compound annual growth rate. The growing proliferation of high-bandwidth intensive applications, such as streaming, gaming, financial services, cloud-based services and remote work, is driving demand for high-speed broadband. AT&T is steadily expanding its portfolio to capitalize on these emerging market trends.
The company is steadily expanding its portfolio beyond traditional communication services to open up new revenue streams. It recently introduced FirstNet Fusion, a leading-edge mission-critical communications platform. The platform is designed to act as a one-stop solution that integrates multiple communication tools into a unified, interoperable ecosystem. The company recently introduced AT&T Express Waves, a leading-edge fiber solution that allows businesses to quickly scale operations by supporting cloud, AI, and edge applications. AT&T’s 5G network covers more than 320 million people across 27,000 cities and towns in the United States.
T's Estimate Revision Trend
Earnings estimates for AT&T for 2025 and 2026 increased over the past 60 days.
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Key Valuation Metric of T
From a valuation standpoint, AT&T appears to be trading relatively cheaper compared to the industry and trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 11.48 forward earnings, lower than 12.04 for the industry and the stock’s mean of 12.56.
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End Note
AT&T remains focused on business transformation efforts to augment operational efficiency and facilitate optimum utilization of resources to enhance value. It expects to continue investing in key areas and adjust its business according to the evolving market scenario to fuel long-term growth. Upward estimate revision underscores growing investors’ confidence in the stock’s growth potential.
However, growing competition in a highly saturated U.S telecom market is weighing on margins. As AT&T tries to woo customers with healthy discounts, freebies and cash credits, margin pressures tend to escalate. With a Zacks Rank #3 (Hold), AT&T appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
