AT&T (T 0.41%) has quietly been a great-performing stock over the past couple of years, but it has pulled back after the company failed to raise its guidance when it reported its second quarter results. Investors were expecting a hike after rival Verizon Communications did so a couple of days earlier.
Let's look at AT&T's results to see if the pullback is a buying opportunity.
Strong subscriber growth
When it comes to wireless subscriber growth, AT&T has taken advantage of a Verizon price hike earlier this year to gain customers. In the second quarter, it added 479,000 retail postpaid subscribers, including 401,000 retail postpaid phone additions. It did lose 34,000 prepaid subscribers, but that is generally viewed as a less important segment than subscribers who get a monthly bill.
Overall mobility-segment revenue increased 6.7% to $21.8 billion. Mobility service revenue rose 3.5% to $16.9 billion, while equipment sales surged 18.8% to $5 billion. Postpaid phone average revenue per subscriber (ARPU) edged up 1.1% to $57.04.
Turning to broadband, AT&T added 243,000 fiber subscribers and 203,000 internet air subscribers. The company lost 93,000 non-fiber subscribers as they continued to switch to faster options.
Broadband ARPU climbed by 7.5% to $71.16, while fiber ARPU rose by 6.2% to $73.26. Total consumer broadband revenue was up 5.8% to $3.5 billion.
Fiber will be a big focus for the company, with it looking to ramp up its investment to a pace of 4 million new locations per year. It just surpassed 30 million fiber locations and is looking to double that number by 2030, including through assets it has agreed to acquire, its Gigapower joint venture with BlackRock, and agreements it has with other commercial open-access providers.
The investment in fiber will be helped by new tax provisions in the "One Big, Beautiful Bill" that allow some assets to immediately be fully depreciated in the year they go into use.
Image source: Getty Images
On the downside, AT&T's business wireline segment saw a 9.3% decrease in revenue to $4.3 billion. The segment flipped from an operating profit of $102 million in the second quarter of last year to a loss of $201 million this year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the segment fell 11.3% to $1.3 billion.
Total revenue rose by 3.5% to $30.8 billion, while adjusted earnings per share (EPS) jumped by 5.8% to $0.54. The results surpassed Wall Street expectations for adjusted EPS of $0.52 on revenue of $30.8 billion.
AT&T generated $9.8 billion in operating cash flow, and free cash flow of $4.4 billion. It paid out just over $2 billion in dividends, good for a coverage ratio of 2.2 times. The company has held its quarterly dividend of $0.28 steady since May 2022, and the stock currently has about a 4% forward dividend yield.
Looking ahead, the company largely kept its guidance intact, which was disappointing after Verizon raised its full-year EPS outlook. AT&T is looking for its mobility service revenue to grow by 3% or better, with adjusted EPS of between $1.97 to $2.07, which would be down from the $2.26 it produced in 2024. It forecast free cash flow to be in the low to mid $16 billion range.
| Metric | Prior Guidance | New Guidance |
|---|---|---|
| Mobility service revenue growth | The higher end of 2% to 3% | 3% or better |
| Adjusted EPS | $1.97 to $2.07 | $1.97 to $2.07 |
| Adjusted EBITDA | 3% or better | 3% or better |
| Free cash flow | $16 billion-plus | In the low to mid $16 billion range |
Source: AT&T
Further out, AT&T expects to spend between $23 billion to $24 billion a year on capital expenditures (capex) in both 2026 and 2027. It projects that its free cash flow will be more than $18 billion in 2026 and more than $19 billion in 2027.
Should investors buy the dip?
AT&T has been taking it to Verizon in subscriber additions, offering more-aggressive deals on smartphones and keeping prices lower than its rivals, while committing to strong network reliability. Its overall second-quarter results were solid; however, investors were clearly looking for the company to raise EPS guidance after Verizon increased its forecast and with the tax benefits it will see from the One Big, Beautiful Bill.
But these tax benefits will eventually hit the bottom line, and the company is looking to take advantage of the bill to more aggressively grow its fiber network. That's a smart move given that Verizon is set to greatly expand its fiber network when it completes its acquisition of Frontier Communications next year. Also, 2026 could be the year of the bundle for wireless companies, and AT&T is looking to ramp up its fiber network to compete against what should become a stronger Verizon.
Even with the stock's pullback, AT&T still trades at a large premium to Verizon. It has a forward price-to-earnings multiple (P/E) of about 13.5 based on 2025 earnings estimates, versus a forward P/E of 9 for Verizon. Until recently, Verizon historically had the higher multiple.
Given the valuation gap, its higher yield (about 6%), and Verizon's impending Frontier acquisition, I prefer it over AT&T. Nonetheless, I think both can be strong long-term investments, and both should benefit from the One Big, Beautiful Bill.
