AT&T (T) is a key player in the U.S. telecommunications sector, with a strong presence in both wireless and broadband services. AT&T is also a popular choice for income-seeking investors due to its high dividend yield. 

While AT&T operates in a rapidly growing industry, the company has faced significant challenges in recent years due to market saturation, debt burdens, and increased competition in the sector. 

AT&T stock, valued at $164.7 billion, is up 36% in the year-to-date, outpacing the broader market. The stock is rated a "Strong Buy" by Wall Street, with 41% upside expected over the next 12 months. Let’s find out if this tech stock is a buy now.

Strategic Efforts Could Boost Earnings

In 2022, AT&T decided to simplify its operations and improve its balance sheet. The sale of the WarnerMedia business to Discovery (which now operates as a standalone global media and entertainment company, Warner Bros (WBD)), enabled the company to reduce its debt and reallocate capital to its core growth operations. As a result, AT&T is now better positioned to compete with both traditional telecommunications companies and industry disruptors.

AT&T is well-known for its dividend, making it an attractive option for income-seeking investors. AT&T offers an attractive forward dividend yield of 4.86%, which is significantly higher than the communications sector average of 2.62%. However, AT&T’s dividend payout has been a source of concern due to the company’s high debt levels. During the third quarter, the company reduced its net debt by about $1.1 billion.

Telecommunications necessitates large capital investments in infrastructure, such as 5G and fiber networks. Balancing these investments with profitability and a 51.4% dividend payout ratio will be an ongoing challenge for AT&T. 

AT&T’s financial results show strong execution in key areas. In the third quarter, the mobility business increased its service revenue by 4% and EBITDA by 6.7% year-over-year. The company added 403,000 postpaid phone net subscribers, demonstrating strong demand for its wireless services despite fierce competition.

The company added 28,000 total broadband subscribers, including 226,000 AT&T fiber net additions, indicating strong demand for high-speed internet. AT&T plans to reach more than 30 million fiber locations by the end of next year, making broadband services an increasingly important component of its growth strategy.

The company’s free cash flow increased significantly, with $5.1 billion generated in the third quarter alone, bringing the year-to-date total to $12.8 billion. 
In another significant strategic move, AT&T sold TPG (TPG) a 70% stake in DIRECTV, allowing the company to streamline operations and refocus on 5G and fiber growth. The sale will provide a cash infusion, strengthen AT&T’s balance sheet, and free up resources for core business operations. The company expects a $1.1 billion pre-tax cash payment from the sale in the fourth quarter, increasing its financial flexibility.

Furthermore, AT&T is on track to meet its debt-reduction targets, with a net debt-to-EBITDA ratio of 2.5x by the first half of 2025.

The telecommunications industry is still highly competitive, with Verizon Communications (VZ) and T-Mobile (TMUS) posing significant challenges in the wireless and broadband markets. Analysts expect AT&T’s earnings to fall by 7.9% to $2.22 in 2024, followed by a dip of 1% to $2.19 in 2025. 

What Does Wall Street Say About AT&T Stock?

Overall, Wall Street rates AT&T stock a "Moderate Buy.” Of the 27 analysts covering the stock, 14 analysts recommend a "Strong Buy,” two recommend a "Moderate Buy," 10 rate it a “Hold” and one suggests a “Strong Sell.” 

Based on its average analyst target price of $26.10, the stock can climb as much as 13.6% from current levels. Plus, its high price target of $32.50 represents upside potential of 41.5% over the next 12 months. 

AT&T’s future depends on how well it can navigate the current headwinds. AT&T is preparing for long-term success by focusing on high-value customers, reducing debt, and increasing financial flexibility. 

The Bottom Line on AT&T Stock

Although AT&T presents a compelling investment opportunity with a clear focus on areas that will drive future growth, I believe risk-averse investors should closely monitor the company’s efforts to reduce debt and report consistent profits before making an investment decision. 

For investors with a high-risk tolerance, the current share price may still be appealing, but waiting for a drop to the $20 level could be a smarter move. Investors with a high risk appetite often thrive on volatility, and this price point may provide a reasonable cushion while still leaving room for growth. Of course, it’s critical to monitor the company’s performance and broader market trends, but for those willing to take some risks, this could be a good opportunity.