AT&T Stock Held Up In A Tough Market. What Does 2023 Hold?

AT&T stock (NYSE:T) has fared pretty well over the last year remaining roughly flat, compared to the S&P 500 which fell by about 17% over the same period. AT&T has been able to focus more on its wireless business in recent quarters following the spin-off of its media and satellite TV assets. Over Q3, for example,  AT&T added a net of 708,000 postpaid phone subscribers over the quarter, compared to rival Verizon which lost 189,000 wireless postpaid phone subscribers in its consumer division. While this is driven in part by improving 5G wireless coverage, AT&T has also been offering attractive device promotions. AT&T has also been able to manage the impact of rising inflation by focusing on cutting costs while hiking prices on some older plans.

So will the outperformance continue? We think AT&T remains fairly valued, trading at about 7.5x consensus 2023 earnings, well below historical levels. The company’s dividend yield also stands at an attractive 6%, a positive factor in a rising interest rate environment. We also think that AT&T should be able to drive profits higher in the long term as the expensive buildout of its 5G network winds down, with revenues and margins benefiting from subscribers opting for more premium plans. AT&T’s fiber broadband operations have also been expanding, adding roughly 1 million subscribers over the first three quarters of 2022. Moreover, the company has also been focusing on reducing its debt load via the proceeds from the WarnerMedia spinoff and also from its cash flows, with debt falling by $25 billion over the first three quarters of 2022. The deleveraging and potentially higher cash flows could support the stock.

Although the U.S. economy does face some headwinds, with multiple indicators pointing to a recession in the near-term, wireless data and telecom services have become essential to customers, meaning that AT&T is unlikely to see a very major impact on its financials. We remain positive on AT&T stock with a $24 price estimate, which is about 25% ahead of the current market price. See our analysis on AT&T Valuation for more details on what’s driving our price estimate for AT&T. For more details on AT&T’s key revenue streams and check out our analysis of AT&T Revenues: How Does T Make Money?

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