AT&T (T)

Telecommunications conglomerate AT&T (NYSE:T) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 2% year on year to $30.63 billion. Its GAAP profit of $0.61 per share was 23.4% above analysts’ consensus estimates.

Company Overview

Founded by Alexander Graham Bell, AT&T (NYSE:T) is a multinational telecomm conglomerate providing a range of communications and internet services.

The massive physical footprints of cell phone towers, fiber in the ground, or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their landlines and traditional cable subscriptions in favor of wireless communications and streaming video. These trends do mean that more households need cell phone plans and high-speed internet. Companies that successfully serve customers can enjoy high retention rates and pricing power since the options for mobile and internet connectivity in any geography are usually limited.

Competitors in the telecommunications industry include Verizon (NYSE:VZ), T-Mobile (NASDAQ:TMUS), and Comcast (NASDAQ:CMCSA).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. AT&T struggled to consistently generate demand over the last five years as its sales dropped at a 7.3% annual rate. This was below our standards and suggests it’s a lower quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. AT&T’s revenue over the last two years was flat, sugggesting its demand was weak but stabilized after its initial drop in sales.

AT&T also breaks out the revenue for its most important segment, Mobility. Over the last two years, AT&T’s Mobility revenue (wireless plans) averaged 2.3% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, AT&T reported modest year-on-year revenue growth of 2% but beat Wall Street’s estimates by 1%.

Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not lead to better top-line performance yet.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

AT&T’s operating margin has been trending down over the last 12 months, but it still averaged 17.2% over the last two years, top-notch for a consumer discretionary business. This shows it’s an efficient company that manages its expenses effectively.

This quarter, AT&T generated an operating profit margin of 18.8%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for AT&T, its EPS and revenue declined by 3.5% and 7.3% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, AT&T’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, AT&T reported EPS at $0.61, up from $0.48 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects AT&T’s full-year EPS of $1.65 to grow 26.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

AT&T has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 15.6% over the last two years, better than the broader consumer discretionary sector.

AT&T’s free cash flow clocked in at $4.77 billion in Q1, equivalent to a 15.6% margin. This result was good as its margin was 5.1 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Over the next year, analysts’ consensus estimates show they’re expecting AT&T’s free cash flow margin of 15.7% for the last 12 months to remain the same.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

AT&T historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.2%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, AT&T’s ROIC averaged 3.4 percentage point increases over the last few years. This is a good sign, and we hope the company can continue improving.

AT&T reported $6.89 billion of cash and $143.6 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $44.66 billion of EBITDA over the last 12 months, we view AT&T’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $3.38 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing AT&T beat analysts’ revenue and EPS expectations this quarter. Overall, this quarter had some key positives. The stock traded up 3.4% to $27.88 immediately following the results.

Updated: July 11, 2025 at 12:01 AM EDT

Before making an investment decision, investors should account for AT&T’s business fundamentals and valuation in addition to what happened in the latest quarter.

AT&T doesn’t pass our quality test. To kick things off, its revenue has declined over the last five years. And while its sturdy operating margins show it has disciplined cost controls, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its projected EPS for the next year is lacking.

AT&T’s P/E ratio based on the next 12 months is 13.2x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $29.76 on the company (compared to the current share price of $27.63).