Are AT&T stocks worth buying now?

AT&T (NYSE:T) quietly emerged as an impressive turnaround story. Compared to a difficult past few years, which were pressured by disappointing earnings and weak trends in the wireless industry, the latest results show an improving outlook. The stock is up 34% over the past year, now trading at a multi-year high.

Often, in a rally, investors may wonder how many more growth stocks they can buy or if it’s too late to jump in. Could AT&T stock be a good addition to your portfolio now? Let’s look at a few reasons to remain bullish on this high-yield telecommunications leader.

Strong first half of 2024

It’s been a little over two years since AT&T completed one of the largest restructurings in its history, spinning off WarnerMedia Group in 2022. The deal marked a turning point for the company, shifting its focus away from entertainment investments to refocus its efforts on its telecom strengths.

The new strategy appears to be paying off, with stronger underlying profitability being a big theme for AT&T this year. In the second quarter, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 2.6%, while free cash flow of $4.6 billion was up $0.4 million from a year ago.

Even as secular declines in the company’s wireline segment continue to weigh on its top line, its core-mobility and consumer-wireline businesses are seeing renewed momentum. AT&T is benefiting from a resilient macro backdrop on the demand side and the impact of gradual price increases implemented in recent years.

In terms of guidance, management is assuming full-year wireless revenue growth in the range of 3%, which would translate into steady subscriber growth and higher average revenue per user (ARPU). The company also expects broadband revenue to be above 7% in 2024, with AT&T fiber being a key growth driver.

The ongoing shift from traditional cable to more advanced broadband infrastructure has created a category of “converged customers” who subscribe to both fiber and wireless services. AT&T sees a big opportunity in combining different services as a tailwind for higher profitability through 2025 and beyond.

Why I’m bullish on AT&T

My conclusion when I look at AT&T today as an investment opportunity is that the company has successfully regained its fundamental position. Perhaps the biggest improvement that AT&T has undergone is the strengthening of its balance sheet. Long plagued by a heavy burden of liabilities, AT&T is managing to reduce its debt burden with a decline in net debt supported by positive free cash flow.

This momentum is great news for investors eyeing AT&T’s 5.4% dividend amid growing confidence that the quarterly rate of $0.2775 per share is sustainable. With indications that the Federal Reserve may cut interest rates later this year, AT&T’s industry leadership and high-yield profile will seem even more attractive.

One of the unique aspects of the telecommunications and wireless business is its defensive positioning. For most people, a smartphone with mobile service and internet has become a necessity. This means that even in a downturn scenario, AT&T should continue to generate high-quality cash flow while maintaining earnings stability. This could make the stock a winner even in a volatile stock market environment.

I also like AT&T stock because of its attractive valuation, which is about 6.4 times management’s 2024 adjusted EBITDA forecast as a ratio of enterprise value to future EBITDA. Interestingly, this level represents a discount compared to Verizon Communications trading at a multiple of 6.6 in the same indicator or T-Mobile USA at 9.6. In my view, AT&T offers good value and there is optimism that some growth in the earnings premium could be a catalyst for the stock.

T EV to EBITDA (Forward) data by YCharts.

My AT&T Stock Prediction

I believe AT&T stock deserves more attention and could work well for investors as part of a diversified portfolio. While it likely won’t be linear growth, there’s a good chance the stock could grow from here while investors are compensated with a solid dividend yield. The company’s ability to continue executing its strategy should reward shareholders in the long run.

Is it worth investing $1,000 in AT&T now?

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Dan Victor has no position in any stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.

Is AT&T Stock Worth Buying Now? was originally published by The Motley Fool