AT&T marking its best gain in nine months as analysts focus on cash, subs

AT&T stock (NYSE:T) bucked a sharply lower market Wednesday morning, pacing toward its best gain in nine months after second-quarter earnings surprised to the upside on phone subscribers and cash flow.

AT&T (T) rose 5.3% at midday, even as the overall stock market was on track for its worst day in more than a year. AT&T last surpassed a 5% gain on Oct. 19, 2023, following its third-quarter earnings.

This quarter, revenues looked to miss with a slight decline, as Business Wireline sales dipped along with Mobility equipment revenues. But AT&T (T) pulled off a big upside surprise in postpaid phone net adds (+419,000 vs. expectations for +280,000), and free cash flow jumped nearly 10% year-over-year.

And despite the revenue miss, the cash figures “set a strong tone for the back half of the year,” Seeking Alpha analyst Quad 7 Capital said in reaction. “With $2.1B in dividends paid, the dividend payout ratio was just 45.9%, which is outstanding for Q2. This means the dividend is more than safe.”

BofA analyst David Barden was among those cheering the results, reiterating a Buy rating. “In our view, AT&T’s valuation is compelling given its growing FCF, well covered dividend, and ability to delever,” he wrote.

Meanwhile, while wireless equipment weighed on revenue, segment earnings before interest, taxes, depreciation and amortization was 1% better than expected at just under $12B, J.P. Morgan’s Sebastiano Petti noted.

“AT&T remains our top pick and a top pick on the J.P. Morgan US Equity Analyst Focus List given the company’s discount versus peers, improving fundamentals, and optionality as leverage declines towards 2.5x,” Petti wrote.

AT&T (T) has kept up a positive correlation to Treasurys, Seeking Alpha analyst Livy Investment Research noted — favorable for the company amid speculation of impending rate cuts as inflation cools.

“Looking ahead, we view the continued ramp for AT&T Internet Air, upcoming cyclical events, and end-of-year device upgrades as key drivers of the company’s fundamental performance,” Livy continues.