Why AT&T (NYSE: T) is Turning the Corner in 2024

Author: Olivia Taylor Updated: 09-07-2024 09:20 AM

AT&T's Remarkable Turnaround

AT&T (NYSE: T) has recently emerged as a notable turnaround story, particularly after facing a series of challenges characterized by disappointing earnings and tough competition in the wireless market. With a remarkable surge of 34% over the past year, the stock has reached impressive multi-year highs. Investors often find themselves in a dilemma during such rallies, pondering whether it's too late to buy or if further growth is on the horizon. Let’s dive into the reasons for maintaining a positive outlook on this high-yield telecom giant.

A Promising Start to 2024

Since AT&T's major restructuring, which saw the divestment of its WarnerMedia segment in 2022, the company has charted a new course. This shift has allowed it to concentrate on its telecommunications capabilities, steering clear of the entertainment distractions. The strategy seems to be yielding results, as evidenced by the company’s improved profitability. In the second quarter of this year, adjusted EBITDA rose by 2.6%, while free cash flow reached $4.6 billion, marking a year-over-year increase.

Despite the ongoing decline in its wireline segment, AT&T's core mobility and consumer services are picking up steam. A resilient economy has bolstered demand, and the company has seen the benefits of gradual price hikes in recent years. Looking ahead, management is optimistic about a 3% increase in full-year wireless revenue, alongside a projected 7% growth in broadband revenue for 2024, largely driven by its fiber offerings.

Reasons to be Optimistic About AT&T

AT&T's proactive shift towards bundling services—combining fiber and wireless offerings—has created a new category called 'converged customers'. This strategy is anticipated to enhance profitability well into the future. Notably, the company’s balance sheet has seen marked improvements as it successfully manages debt reduction through strong free cash flow. This financial health is encouraging for investors drawn to AT&T's impressive 5.4% dividend yield, which shows signs of sustainability.

Furthermore, as the Federal Reserve hints at potential interest rate cuts, the appeal of AT&T's high-yield profile is expected to increase even more. The nature of the telecom business—with smartphones seen as a necessary utility—positions AT&T favorably, even in challenging economic climates. This means dependable cash flows and stable earnings can be anticipated, making AT&T a potentially wise choice amid market volatility.

Valuation Insights for Investors

AT&T offers a compelling investment opportunity with its current valuation sitting around 6.4 times the management's EBITDA guidance for 2024. This is notably lower than its competitors, such as Verizon Communications at 6.6 times and T-Mobile US at 9.6 times. Such a valuation may suggest that AT&T is undervalued, inviting a reconsideration of its earnings potential as a driver for stock performance.

Where AT&T Stock Might Head

Looking forward, AT&T stock merits serious consideration for those building a diversified investment portfolio. While growth may not follow a straight trajectory, the potential for price appreciation alongside a robust dividend payout makes it a valuable asset. Successful execution of its strategic plans should create significant rewards for shareholders in the long run.

Should You Invest in AT&T Today?

Before adding AT&T stock to your portfolio, it’s essential to assess the broader landscape of investment opportunities. As of now, AT&T remains a robust contender, especially given its strong prospects. Ultimately, weighing the telecom giant's features against other high-potential stocks will help in making an informed decision.

Frequently Asked Questions

What is AT&T's current stock price trend?

AT&T has shown a remarkable upward trend, with a 34% increase over the past year, reaching multi-year highs.

How did AT&T's restructuring affect its performance?

The restructuring allowed AT&T to focus more on its telecommunications strength, leading to improved profitability and cash flow.

What dividend can investors expect from AT&T?

Investors can anticipate a 5.4% dividend yield, which is deemed sustainable based on the company's financial performance.

Why is AT&T considered a defensive investment?

With smartphones and connectivity seen as necessities, AT&T is expected to generate stable cash flows even during economic downturns.

What is AT&T's valuation compared to competitors?

AT&T trades around 6.4 times EBITDA, making it cheaper than competitors like Verizon and T-Mobile, suggesting potential for growth.

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