AT&T Posts Strong Wireless Results in Q3

AT&T T demonstrated resilience during the third quarter, with improvements nearly across the board in its telecom businesses and at WarnerMedia. Most impressive, the firm added 645,000 net postpaid phone customers during the quarter, its best performance in several years and topping rival Verizon (283,000). Management also made the case for its aggressive iPhone 12 promotion, pointing to the long commitment (30 months) attached. The promotion will pressure cash flow during the fourth quarter, but not terribly: AT&T increased 2020 expectations on this front. The firm now expects to generate $26 billion of free cash flow for the year, up about $2 billion from its prior forecast, leaving the dividend payout in the high-50% range.

Beyond earnings, we found new CEO John Stankey’s comments on the business refreshing, especially his thinking around increased fiber investment. He appears committed to leveraging AT&T’s existing capabilities and opportunities rather than pursing a grand strategic vision. How this tact will unfold in terms of asset sales or other strategic moves remains unknown, but we’re hopeful that the firm is getting back on the right track. We don’t expect to materially change our $37 fair value estimate or narrow moat rating; we believe the stock is attractive.

In addition to solid wireless customer growth, AT&T posted a big drop in television customer losses (590,000 versus 1.2 million a year ago) and a return to broadband customer growth for the first time in nearly two years. The firm believes television losses will more closely track with the pace of cord cutting across the industry as it exits 2020, implying that most unprofitable customers have now departed. HBO Max activated another 8.6 million new domestic accounts during the quarter. More than 38 million U.S. customers now receive HBO or HBO Max, up from less than 35 million at the start of the year.

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