AT&T A Stock With Huge Risk and Low Growth, Are You Buying?

$AT&T Inc(T)$

Earning Overview

AT&T released its fourth-quarter results before the market opened this morning, reporting sales and earnings that surpassed Wall Street's expectations. The company achieved adjusted non-GAAP earnings per share of $0.54 on revenues of $32.3 billion, exceeding the average analyst estimates of $0.51 per share and $31.94 billion in sales.

The telecom giant's revenue grew by 0.9% year-over-year in Q4, driven by increases in mobile and broadband services, which offset declines in wireline. Specifically, AT&T's mobility services segment saw a 3.3% year-over-year increase in sales, reaching approximately $16.6 billion, while consumer broadband revenue rose by 7.8% to $2.9 billion. During the quarter, AT&T added 482,000 net postpaid phone service subscribers and 307,000 fiber service subscribers.

AT&T's Q4 2024 earnings report exceeded expectations, driven by strong performance in key segments. Revenue: $32.3 billion, up 0.9% year-over-year, surpassing analyst estimates of $32.04 billion. Adjusted EPS: $0.54, beating the estimate of $0.50.

Fundamental Analysis

AT&T generates revenue primarily from wireless services (postpaid and prepaid), broadband (fiber), and media (formerly WarnerMedia, now part of a separate company after its spinoff). As of recent years, wireless services and broadband are the core drivers of growth.

Revenue Growth Trends: AT&T has seen fluctuations due to industry competition and its ongoing strategic shift. However, wireless services, including 5G, and broadband are expected to remain central to its growth.

AT&T has historically carried significant debt, especially after its acquisitions (e.g., Time Warner, DirecTV). Reducing this debt has been a focus, but it remains an important factor to monitor. Debt-to-equity ratio and interest coverage ratio are crucial metrics to assess here.

Guidance

AT&T is expected to see modest growth in revenue, driven by these key services. Analysts will be monitoring growth in both postpaid wireless subscribers (higher ARPU) and fiber broadband expansion.

Free Cash Flow

In Q4 2024, AT&T reported free cash flow of $4.8 billion. This figure was down $1.5 billion year-over-year, as the company aimed to achieve a more consistent quarterly free cash flow cadence. For the full year 2024, AT&T's free cash flow was $17.6 billion, an increase of $0.9 billion compared to the previous year

Technical Analysis

Key Support Levels

Support levels are price points at which the stock has historically had difficulty falling below. These are considered “floor” prices where buying interest is strong enough to halt the decline and potentially reverse the trend.

$14.50 - $15.00 (Strong Support Zone)

• AT&T's stock has seen multiple tests of this level in recent months. If the price falls near this level, there is often significant buying interest that prevents it from dropping further.

• If the stock price falls to this range again, it may bounce back or consolidate at this level before attempting higher gains.

$16.00 - $16.50 (Intermediate Support Zone)

• This zone has acted as a floor in the past, and it could potentially provide support again if AT&T faces any negative news or market pullbacks.

• A bounce from this zone could signal that the stock is maintaining its bullish trend or finding its footing after a temporary sell-off.

$17.00 (Short-term Support)

• This is a short-term support level that has held up during minor pullbacks. If the stock trends downward, this could act as a potential reversal point for short-term traders to buy.

Key Resistance Levels

Resistance levels are price points at which the stock tends to struggle to move above, due to selling pressure. These levels act as “ceilings” for price movements.

$18.50 - $19.00 (Strong Resistance Zone)

• The $18.50 - $19.00 range has consistently capped upside moves in recent months. If AT&T's stock approaches this level again, expect potential selling pressure or consolidation.

• A break above this resistance would be a bullish signal and could lead to a new uptrend toward higher price targets.

$20.00 (Key Psychological Resistance)

• The $20.00 mark is a key psychological level. Round numbers often serve as significant resistance or support in technical analysis. If AT&T pushes through this level, it would indicate the stock has strength and is likely to head higher.

• It could also trigger additional buying momentum, especially if combined with strong fundamental news or positive earnings reports.

$21.50 - $22.00 (Major Resistance Level)

• This is a key level to watch for the medium to long term. If AT&T breaks through this zone, the stock could gain significant bullish momentum and head towards higher levels.

• This resistance level aligns with previous peaks in AT&T's price, making it a critical test for long-term traders and investors.

Risks and Challenges

Debt Burden: One of AT&T's most pressing challenges is its significant debt load, which has been a persistent issue, particularly after its acquisitions (like Time Warner and DirecTV). Although AT&T has been working to reduce this debt following the WarnerMedia spin-off, its debt-to-equity ratio remains high compared to industry standards.

Interest Payments: The company must continue servicing its debt, which requires a substantial portion of its cash flow. Rising interest rates or unexpected economic downturns could make debt servicing more expensive, putting further pressure on profitability and free cash flow.

5G Rollout Execution: AT&T’s future growth largely hinges on the success of its 5G network rollout. Delays or cost overruns in deploying 5G infrastructure, especially in rural areas or underserved markets, could hurt growth expectations.Execution Risk: The telecom industry’s rapid technological advancements mean that AT&T needs to continuously invest in and update its infrastructure. If the company falls behind in 5G technology or doesn’t capture enough customers from competitors, it could lose out on significant revenue potential.

Fiber Expansion Costs: Expanding its fiber network is crucial for AT&T’s future, but capital expenditures are high, and returns on those investments may take time to materialize. If the company overestimates demand for fiber or faces difficulties in scaling it efficiently, it could undermine profitability.

Declining TV Business (DirecTV): AT&T's DirecTV satellite service has been struggling with subscriber losses due to cord-cutting trends and competition from streaming services like Netflix, Disney+, and YouTube TV. While AT&T has sold off DirecTV, it still faces headwinds in its pay-TV offerings, especially with the ongoing shift to streaming.

Cable and Satellite Decline: Even with the divestiture of DirecTV, AT&T’s legacy cable and satellite services continue to face decline in subscribers, which may offset gains in wireless and fiber broadband.

Valuation

Target Price Range for 2025: Based on industry forecasts, AT&T’s target price could range from $22 to $30 by the end of 2025, depending on earnings growth, debt reduction, and the broader telecom market trends.

Market sentiment

Competitive Landscape: AT&T will face continued competition from Verizon and T-Mobile, particularly in the wireless and broadband sectors. However, the company’s 5G and fiber network expansion could give it an edge.

T-Mobile’s aggressive pricing and Verizon’s 5G innovation will push AT&T to innovate and stay competitive.

Economic Conditions: Broader macroeconomic conditions (interest rates, inflation, consumer spending) could impact AT&T’s growth and its ability to pay down debt. If interest rates remain high in 2025, the cost of debt service could limit free cash flow, which might affect its stock performance.

Technological Risks: The telecom sector is also undergoing rapid technological changes, including 5G network evolution and emerging fiber services. AT&T’s ability to execute its strategic plans around these technologies will determine its competitive positioning and long-term valuation.

Conclusion

AT&T’s fundamental suggests that it is undergoing a period of transformation, focusing more on its wireless and broadband businesses, particularly with its 5G rollout and fiber network expansion. The company faces competition from T-Mobile and Verizon, but its efforts to reduce debt, stabilize its core business, and pay dividends should appeal to investors looking for stability. However, the level of debt and the potential impact of regulatory and competitive pressures must be carefully considered.

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