AT&T Earnings Beat: Buyback Boost, But Debt Looms
💡 Key Takeaway
AT&T's strong earnings and buyback are positive, but high debt and slow growth mean income investors should keep positions modest.
What Happened: AT&T Delivers Earnings Beat and $10 Billion Buyback
AT&T reported second-quarter earnings that beat expectations, with adjusted EPS rising 20% year over year to $0.65. Revenue grew 2.3% to $31.6 billion, driven by strong subscriber additions: 432,000 postpaid phone customers and 646,000 internet subscribers, including 367,000 fiber additions.
Adjusted EBITDA margin expanded 110 basis points to 39.1%, reflecting a shift toward higher-margin fiber and postpaid customers. Free cash flow came in at $4.7 billion, up from $4.4 billion a year ago.
Management also announced an increase in its 2026 share repurchase plan to $10 billion, up from $8 billion. The stock rose 5.1% on the news, closing at $24.13, still 19% below its 52-week high.
The company guided for 2026 free cash flow of at least $18 billion, which covers the dividend ($7.6 billion) and the buyback ($10 billion) combined. Future years project higher free cash flow: above $19 billion in 2027 and above $21 billion in 2028.
However, net debt stood at $126.4 billion (2.68x EBITDA) and is expected to rise to about 3.2x after the EchoStar transaction closes, before declining over three years.
Why It Matters: Income Investors Get a Mixed Bag
AT&T's earnings beat and buyback boost are positive signals for income investors. The 4.6% dividend yield is well-covered by free cash flow, and the increased buyback suggests management believes the stock is undervalued.
However, the company returns essentially all free cash flow to shareholders, leaving little cushion for unexpected downturns. Debt is expected to rise before it falls, which adds risk for a company with slow revenue growth (2% annually).
For investors, AT&T offers a compelling yield and a growing fiber business that supports margin expansion. But the stock's low valuation (8x earnings) reflects market concerns about debt and growth.
The key question is whether AT&T can generate enough free cash flow to reduce debt while maintaining dividends and buybacks. If it succeeds, the stock could re-rate higher. If not, the dividend may be at risk.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
AT&T is a hold for income investors, but not a bargain given debt and slow growth.
The dividend is safe and the buyback signals confidence, but the stock's low valuation is justified by high debt and 2% revenue growth. Income investors can own it for the yield, but should keep positions modest and treat the buyback as a bonus.
What This Means for Me
