Is It Time to Buy AT&T Ahead of a Big Buyback?

While much of the investing world has been focused on artificial intelligence, one under-the-radar stock winner over the past year has been AT&T (NYSE: T). Shares of the telecom giant are up by more than a third in the past 12 months. The stock got another boost after the company posted solid fourth-quarter results and indicated it would implement a big buyback.

Let's take a closer look at AT&T's Q4 results to see if the stock is still a buy.

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Solid subscriber growth and a big buyback ahead

AT&T continues to see solid subscriber growth in its wireless and broadband businesses, helped by its bundling strategy. In the fourth quarter, it added 839,000 retail postpaid subscribers, including 482,000 retail postpaid phone additions. However, it lost 119,000 prepaid subscribers, as this segment continues to feel the aftermath of the end of the Affordable Connectivity Program (ACP) last spring.

Overall mobility segment revenue increased 3.3% to $23.1 billion. Mobility service revenue and equipment sales each rose by 3.3% to $16.6 billion and $6.6 billion, respectively. Postpaid phone average revenue per subscriber (ARPS), meanwhile, rose 0.9% to $56.72.

Turning to broadband, AT&T added 307,000 fiber subscribers and 158,000 internet air subscribers. The company lost 184,000 non-fiber subscribers as they continued to switch to faster options. Broadband ARPS jumped by 6.2% to $69.69, while fiber ARPS climbed 4.7% to $71.71. Total consumer broadband revenue rose 3.4% to $3.5 billion, while fiber revenue climbed 7.8% in the quarter to $2.9 billion.

On the downside, AT&T's business wireline segment saw a 10% decline in revenue to $4.6 billion. The segment flipped from an operating profit of $165 million in Q4 of last year to a loss of $211 million this year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the segment sank 22% to $1.2 billion.

Total revenue edged up 0.9% to $32.3 billion, while adjusted earnings per share (EPS) was unchanged at $0.54. The results topped analyst expectations for adjusted EPS of $0.50 on revenue of $32 billion, as complied by LSEG.

For the year, AT&T generated $18.5 billion in free cash flow in the quarter and paid out $8.2 billion in dividends. The stock currently has a forward dividend yield of about 4.7%. AT&T has held its quarterly dividend, about $0.28, steady since May 2022.

In its release, AT&T said it would spend some $40 billion on dividends and buybacks over the next three years. It has $20 billion pegged toward buybacks and $20 billion toward dividends. It earlier hinted it could possibly raise its dividend, noting it should have an additional $10 billion that could go toward additional dividends, buybacks, or investments. Buybacks are planned to begin in the second half on 2025.

For 2025, the company is looking for full-year revenue growth to be in the low single digits with mobility service revenue growing by 2% to 3% and broadband revenue growing by mid-teens. It expects adjusted EBITDA to grow by about 3% and adjusted EPS of between $1.97 to $2.07, which would be down from $2.26 in 2024. It forecast free cash flow to be more than $16 billion.

It plans to spend around $22 billion modernizing its wireless network and expanding its fiber offering. It plans to exit its copper network by 2029. It's also looking to save $3 billion a year in costs by the end of 2027.

Image source: Getty Images.

Is AT&T stock still a buy?

While AT&T and Verizon Communications (NYSE: VZ) have been putting up similar results, AT&T stock has been nicely outperforming. It's done a nice job of adding wireless and broadband subscribers, as its investments in 5G and fiber have been paying off. It continues to build out its fiber network to pass through more homes, which is driving growth.

Similar to Verizon, it is also seeing weakness in its business wireline segment, as well as with prepaid subscribers. Like Verizon, it also generates a lot of free cash flow. The company appears set to direct most of its excess cash toward buying back stock. Verizon, meanwhile, is in the midst of a large acquisition of Frontier Communications.

AT&T's strong stock performance has vaulted it ahead of Verizon in terms of valuation, with it now having a forward price-to-earnings (P/E) multiple of about 11.4 based on 2025 earnings estimates. That compares to a forward P/E of 8.5 for Verizon. Historically, Verizon has had the higher multiple.

T PE Ratio (Forward) data by YCharts

AT&T has been doing a nice job, but because of the valuation gap I currently prefer Verizon. The two companies' operational results have been quite similar recently, but investors seem to prefer AT&T's capital allocation moves more than Verizon's.

Both stocks, however, look to be solid long-term investments with steady business models that generate a lot of free cash flow.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.