AT&T: Our Reiterated View On Its Fundamentals


  • AT&T should continue to grow organically at a slow pace, driven by a higher share of cable connections and proliferation of IoT devices.
  • However, the mobile sector is characterized by steadily declining ARPU, and the rate of subscriber takeover has slowed significantly.
  • Profitability of the company and in the industry is stable, and the cost structure of the company should prevent it from seeing lower margins in the future as well.
  • Due to its high profitability, AT&T has no problem generating FCF and dividend payments are protected, but we believe current yields are insufficient.
  • Although AT&T’s fair valuation retains a conservative upside, we would wait for it to become more attractive.

AT&T Stock Jumps On Strong Earnings Report

Brandon Bell

Investment Thesis

AT&T (NYSE:T) is a typical representative of the telecom industry. Further growth of the company is limited by declining ARPU and slowing subscriber growth, so the company should be considered only as a defensive asset. Though there

The telecom sector as a whole is not seen as a growing or promising industry - the peak of 5G technology advancement in developed regions is well behind , and the next generation networks are still a long way off, the industry is consolidated by major players offering similar services with slight differences in price and quality, smartphones and communication services are used by almost 90% of the U.S. population.


Therefore, this number will exceed 154 million by the end of 2025.


Meanwhile, the transition of subscribers to high-speed connections will support the rate of revenue growth per user, despite competition in the industry.

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In 2022, AT&T was raising rates to combat inflationary pressures, so the decline in telecom services ARPU is lower this year. However, in the future, AT&T is unlikely to go against the industry trend and continue to raise rates heavily, as this will result in higher customer churn.

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Given all factors, we expect AT&T revenue to reach $121,971 mln (-5.6% YoY including WM sales) in 2023 and $123,356 mln (+1.14% YoY) in 2025.

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AT&T's cost structure remains as stable as possible, the company successfully passes the consequences of inflation to the end consumer and does not sag in terms of profitability. We believe the situation will not change in the future since this is the primary goods sector and the cost structure of all communications providers is identical, the industry will target current levels of profitability in its pricing policy.

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Therefore, we have revised our 2023 adjusted EBITDA forecast downwards from $43 733 mln (+6.1% YoY) to $43 051 mln (+3.8% YoY) and 2023 adjusted EBITDA from $46 093 mln (+4.2% YoY) to $44 022 mln (+2.3% YoY).

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In 2023, the management expects the company to generate FCF of at least $16 bn, which we think is quite optimistic given the expected effective income tax rate of 23-24% and the capex being comparable to 2022 levels (~$20 bn).

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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