Here’s What To Expect From AT&T’s Q2 Earnings

AT&T stock (NYSE:T) is poised to report its Q2 2024 earnings on July 24. The stock has fared reasonably well this year, rising by about 11% since early January. In comparison, rival Verizon (NYSE:VZ) has seen its stock rise 8% over the same period. We expect AT&T to report earnings of $0.58 per share, slightly ahead of the consensus estimates, although this would be below Q2 2023 earnings. Revenues are poised to come in at $30 billion, roughly flat compared to last year. We expect the company’s service revenues for the quarter to tick upward, although handset sales could drop amid economic headwinds and a lack of major new smartphone features. See our analysis of AT&T Earnings preview for more details on what to expect when the company publishes Q2 results.

We will be closely watching AT&T’s performance on the postpaid phone front. The carrier added 349,000 postpaid phone subscribers in Q1 2024, well ahead of consensus estimates. In comparison, Verizon lost 68,000 monthly bill-paying wireless phone subscribers for the quarter, while T-Mobile led the industry with 532,000 additions. The momentum could likely hold up. AT&T has been investing in improving its network and deploying more mid-band spectrum, which offers high speeds and wide coverage. The company spent $23.6 billion on its 5G and fiber broadband infrastructure over 2023, while noting that it would spend about $14 billion over the next five years to shift the bulk of its network traffic onto open and interoperable platforms. We will also be watching the company’s fiber broadband business performance. AT&T had quarterly net adds of 200,000 customers for the business over the last 17 consecutive quarters with additions coming in at 252,000 in Q1, with consumer broadband revenues rising by 7.7% year-over-year. AT&T’s churn has also been trending lower, likely driven partly by an industry-wide decline in smartphone upgrades. The company could also see its average per-user revenues trend higher, driven by a migration to higher-value 5G plans.

T stock has suffered a sharp decline of 35% from levels of $30 in early January 2021 to around $20 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. Notably, T stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -14% in 2021, -25% in 2022, and -9% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that T underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the megacap stars TSLA, MSFT, and AMZN.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could T face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

We think AT&T stock is slightly undervalued. AT&T trades at just about 8.5x consensus 2024 earnings, well below historical levels. The company’s dividend yield also stands at close to 6%.  Moreover, we think that AT&T should be able to drive profits higher in the long term as the expensive build-out of its 5G network winds down, with revenues and margins benefiting from subscribers opting for more premium plans. Although the U.S. economy faces some headwinds with GDP growth slowing down and consumer spending remaining weak, wireless data, and telecom services, have become essential services for customers, meaning that AT&T is unlikely to see a major impact on its financials even in the event of a downturn. Our $18 price estimate for AT&T stock is roughly in line with the current market price. We will be updating our price estimate for AT&T following Q2 earnings. 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 check out our analysis of AT&T Revenues: How Does T Make Money?

[1] Returns as of 7/16/2024
[2] Cumulative total returns since the end of 2016

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