Why AT&T Stock Surged Today

AT&T (NYSE: T) experienced a notable increase of 4% in its stock price by 11:05 a.m. ET on Tuesday, following the announcement of its comprehensive strategic plan aimed at achieving sustainable growth and delivering enhanced returns to shareholders through 2027.

As part of this plan, AT&T outlined several key initiatives:

• Establish the largest fiber broadband network in the United States, with the capacity to serve over 50 million customers.
• Distribute $40 billion to shareholders through dividends and share buybacks over the next three years.
• Initiate this initiative with a $10 billion share buyback by the end of 2026.

AT&T's Strategic Approach

AT&T is pursuing a two-fold strategy for growth, concentrating on 5G wireless services and fiber broadband. The state-of-the-art technology being implemented is expected to facilitate exceptionally fast download speeds while also serving as a foundation for new products and innovations in artificial intelligence (AI). This positions AT&T not only as a communication service provider but also as a player in the AI sector.

On the financial front, AT&T is targeting a growth rate of 2% to 3% annually for its wireless revenue through 2027, with its relatively smaller fiber business poised for more rapid expansion in the mid-teens. The average revenue growth from these two segments is expected to be in the low single digits.

Profits are projected to increase at similar rates, with AT&T estimating that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will grow by at least 3% over the next three years. Free cash flow is also expected to grow at an annual rate of around 4%, increasing from $16 billion in 2025 to over $18 billion by 2027.

Assessing the Value of AT&T Stock

AT&T forecasts that it will generate a total of $51 billion in cash profits over the next three years, averaging out to about $17 billion annually. This figure is expected to fully cover the $40 billion planned for dividends and share repurchases during this period, which will likely please income-focused investors.

With an annual free cash flow of $17 billion and AT&T's market valuation at around $163 billion, the company boasts a price-to-free cash flow ratio of less than 10. This could entice value investors looking for promising opportunities. Coupled with a dividend yield of 4.9% and an anticipated growth rate of 4%, AT&T stock presents itself as an attractive option for potential buyers.

Author has no position in any of the companies mentioned.

AT&T, stock, growth