It’s Time to Buy AT&T Stock Hand Over Fist

Telecom giant AT&T (NYSE: T) slightly missed expectations for revenue and earnings when it reported its first-quarter results on Wednesday, but those headline figures don’t tell the whole story. AT&T continued to win new wireless subscribers while keeping churn at record-low levels, and its broadband business impressed.

AT&T produced $3.1 billion in free cash flow during Q1, and it maintained its guidance calling for between $17 billion and $18 billion in free cash flow for the full year. With the stock trading for less than 7 times the midpoint of that range, investors are getting an incredible bargain.

Wireless momentum

While overall mobility revenue was flat in the first quarter, a drop in equipment revenue was entirely to blame. Mobility services revenue jumped 3.3% year over year, driven by AT&T’s solid subscriber gains and rising revenue per user.

AT&T reported 349,000 net postpaid phone additions in the first quarter, while postpaid churn dropped to a record-low 0.72%. The company now has 71.6 million postpaid phone subscribers, and each of them on average spends $55.57 per month. Average revenue per user edged up 0.9% year over year in Q1.

AT&T’s results are in stark contrast to those of Verizon. Verizon reported a net decline of 158,000 consumer postpaid phone subscribers in Q1. Verizon has lost subscribers in four of the past five quarters.

For the full year, AT&T expects to grow wireless service revenue by about 3%.

A two-pronged approach to broadband

AT&T’s legacy wireline business is in perpetual decline. While AT&T is struggling to offset this declining revenue among business customers, the company is having much more success on the consumer side.

Consumer wireline revenue was $3.4 billion in Q1, up from $3.2 billion in the prior-year period. Within that total, broadband services generated $2.7 billion in revenue, up 7.7% year over year.

Demand for AT&T’s legacy broadband services is shrinking, but the company’s fiber internet service is picking up the slack. Fiber revenue grew by 19.5% in Q1 as AT&T added 252,000 net subscribers. Fiber now accounts for…

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