Accelerated 5G And Fiber Investments Will Unlock Future Connectivity

Key Takeaways

• Accelerated fiber and 5G investments, network convergence, and digital expansion are strengthening recurring revenues while enhancing customer value and supporting future margin gains.
  
• Cost reductions from retiring legacy infrastructure and disciplined capital allocation are driving higher free cash flow and enabling greater returns for shareholders.
  
• Intensifying competition, legacy revenue declines, fiber expansion risks, and increased capital spending threaten AT&T's margins, subscriber retention, and long-term profitability.

Catalysts

Provides telecommunications and technology services worldwide.

• Accelerated investments in 5G and fiber infrastructure, supported by recent pro-investment legislation and tax savings, are expanding AT&T's addressable market and improving its ability to capture growing mobile data, video streaming, IoT, and enterprise connectivity demand-directly fueling recurring revenue and future topline growth.
  
• The push toward network convergence (fiber plus 5G) is yielding higher-value, lower-churn subscriber relationships, increasing ARPU and enhancing customer lifetime value, which supports sustainable improvements in net margins and earnings.
  
• Expansion of the fiber footprint (including acquisitions like Lumen's assets and open access partnerships) positions AT&T to benefit from digital transformation, cloud growth, and demographic shifts such as urbanization and remote work, further stabilizing and growing its customer base and revenues.
  
• Retiring legacy copper and wireline infrastructure is driving structural cost reductions, enabling improved operating leverage and higher free cash flow that can be reinvested for growth or returned to shareholders, supporting margin expansion long term.
  
• Ongoing disciplined capital allocation, balance sheet deleveraging, and improved financial flexibility from higher free cash flow bolster AT&T's ability to invest in growth initiatives, maintain strong dividend payouts, and opportunistically repurchase shares, enhancing total shareholder return and earnings per share over time.

AT&T Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AT&T's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.6% today to 13.5% in 3 years time.
• Analysts expect earnings to reach $17.4 billion (and earnings per share of $2.56) by about July 2028, up from $11.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, down from 16.8x today. This future PE is lower than the current PE for the US Telecom industry at 15.8x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

AT&T Future Earnings Per Share Growth

Risks

• Elevated postpaid phone churn and increased market activity driven by customers coming off device financing, more aggressive competitor offerings, and a generally active competitive environment could place persistent pressure on AT&T's wireless subscriber base and margins, limiting Mobility segment revenue growth and future earnings power.
  
• Ongoing declines in legacy Business Wireline revenues (down 9.3% year-over-year, with 11.3% EBITDA decline) highlight continued secular pressure on non-fiber business lines; these legacy exposures may continue to drag on consolidated revenue and margin mix even as fiber grows.
  
• Expansion into less densely populated or lower-return fiber markets (e.g., targeting the 60 millionth location vs. the first 30 million) may see diminishing incremental returns, higher build costs per location, and slower penetration rates, potentially compressing company-wide ROI and constraining long-term profitability versus earlier phases of the rollout.
  
• Heavy reinvestment of tax savings and ongoing stepped-up capital spending (over $8 billion in additional capex and pension contributions from 2025–2027) could limit near-term free cash flow available for dividends, debt reduction, or share buybacks, especially if revenue growth or returns from new investments disappoint.
  
• Heightened competition in both Mobility and Consumer Wireline from cable operators (leaning in on bundling and convergence), as well as risk of aggressive pricing and alternative broadband technologies, could intensify customer churn and price pressure, impacting AT&T's ability to maintain ARPU growth, sustainable margins, and net income progression over the long term.

Valuation

• The analysts have a consensus price target of $29.934 for AT&T based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $34.0, and the most bearish reporting a price target of just $21.87.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $128.9 billion, earnings will come to $17.4 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $27.42, the analyst price target of $29.93 is 8.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.