Share prices of AT&T (NYSE: T) were heading nicely higher after the wireless company saw solid subscriber additions and generated strong free cash flow when it reported its second-quarter results. The rally pushed the stock's gain for the year up to 14%.
Let's take a look a AT&T's Q2 results and determine whether now is a good time to buy the stock.
Strong subscriber additions
For the quarter, AT&T saw solid results in its wireless business, with 593,000 retail postpaid net additions in the quarter, including 419,000 retail postpaid phone additions. Mobility service revenue rose 3.4% to $16.3 billion, while overall Mobility revenue edged up 0.8% to $20.5 billion and equipment sales fell 8% to $4.2 billion. Postpaid phone average revenue per subscriber (ARPU) , meanwhile, rose from $55.63 a year ago to $56.42.
The company saw strong broadband growth as well, with total fiber net additions of 239,000 and AT&T Internet Air subscriber additions of 139,000. Total net broadband additions were 52,000, as the company saw subscribers switch from non-fiber services. AT&T Internet Air, which is a fixed wireless service, is a newer offering that is now available in 137 markets. The company is being selective with where it offers the service, but it sees it as a nice growth opportunity, including within the business segment.
It ended the quarter with 8.8 million total fiber subscribers, an increase of 14.3% year over year. Fiber revenue climbed 17.9% in the quarter to $1.8 billion. Total consumer broadband revenue rose 7% to $2.7 billion.
While its prepaid wireless business was impacted by the end of the Affordable Connectivity Program (ACP), it was still able to add 35,000 new prepaid subscribers. The government program that helped subsidize internet services to lower-income households ended on June 1.
Wireline business revenue, meanwhile, fell 9.9% year over year to $4.8 billion. This business is expected to remain a drag on the company for the rest of the year.
Total revenue fell 0.4% to $29.8 billion.
The company generated $4.6 billion in free cash flow in the quarter. AT&T pays out dividends of about $2.1 billion a quarter, so the dividend is well covered by its free cash flow. It pays a $0.2775 quarterly per-share dividend, which it has held steady since May 2022 after the company cut it from a prior level of $0.52.
AT&T's balance sheet continues to improve, with a leverage (net debt/trailing-12-month adjusted EBITDA) ratio of under 2.9 at quarter end. The stock currently has a forward dividend yield of about 5.8%.
Looking ahead, the company projected that it would grow full-year wireless revenue by between about 3% and its broadband revenue by 7% or more. It forecast adjusted EPS to come in between $2.15 and $2.25, with adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) to grow around 3%. It is projecting free cash flow of between $17 billion to $18 billion this year.
Image source: Getty Images.
Is it time to buy AT&T stock?
AT&T outshined rival Verizon Communications (NYSE: VZ) in a few areas this quarter, with stronger net postpaid phone additions while better navigating the disruption the end of the ACP had on prepaid customers. It also saw solid broadband results while generating strong free cash flow. The company's wireless business, however, was a bit more of a drag, and overall, Verizon managed to squeeze out some modest revenue growth while AT&T's overall revenue edged down slightly lower.
However, investors certainly were much more excited about AT&T's report than Verizon's result, given its strong postpaid phone additions. Expectations certainly played a role, as analysts were only projecting AT&T to add 284,800 retail postpaid phone subscribers compared to the 419,000 it did add.
Meanwhile, the company continues to pay down debt and could be in a position to increase its dividend sometime next year. AT&T has talked about a goal of getting to 2.5 times leverage, which, if achieved, could possibly open the door for the company to look to raise its dividend. Given its free cash flow and improving balance sheet, this would make sense and could be a nice potential catalyst for the stock.
From a valuation standpoint, AT&T trades at a forward price-to-earnings (P/E) ratio of about 8.4 based on 2025 earnings estimates. This is a similar valuation to that of Verizon.
T PE Ratio (Forward 1y) data by YCharts
Given AT&T's strong free cash flow generation and the strength in its core wireless and broadband businesses, the stock looks attractively valued, in my view, as it continues to improve its balance sheet. Meanwhile, I think a return to gradual dividend increases could be a nice catalyst for the stock in the years ahead. As such, I don't think it is too late to buy the stock.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy .
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