AT&T Coverage Initiated with 'Hold' Rating Amid Ongoing US Telecom Industry Stability

I would rate AT&T with a "Hold" due to its status as a "safe-haven" stock in the US telecom industry. While it may be a preferred choice for retail investors, it's essential to weigh the pros and cons before making an investment decision. AT&T's performance may be impacted by factors such as the ongoing war between Israel and Hamas.

AT&T (NYSE: T) remains a favored choice among retail investors, particularly as a "safe-haven" stock in the volatile US telecom industry. However, a comprehensive analysis of its recent financial performance and market conditions suggests that a "Hold" rating may be more appropriate.

Recent Financial Performance

AT&T's second-quarter (Q2) 2025 financial results were largely positive, with revenue beating analysts' expectations by a wide margin. The company reported a 7.7% year-over-year (YoY) increase in cash from operating activities to $9.8 billion. Additionally, AT&T plans to buy back $4 billion of its shares by 2025 under CEO John Stankey's leadership. However, a notable concern is the company's full-year 2025 adjusted earnings per share (EPS) guidance, which is expected to drop by 10.6% YoY, indicating a potential decline in profitability [1].

Valuation and Debt

AT&T's valuation metrics suggest it is trading at a premium. Its trailing 12-month (TTM) price-to-sales ratio (P/S) is 1.63x, which is 26.29% higher than the sector median and 46.73% higher than its 5-year average. Similarly, its TTM non-GAAP price-to-earnings ratio (P/E) is 12.79x, above its 5-year average by 60%. Despite these premium multiples, AT&T's debt load is a significant concern. With a net debt of approximately $141.5 billion at the end of Q2 2025, the company faces challenges in reducing its debt load, which may impact its ability to service debt or pay dividends [1].

Dividend Yield and Share Buyback Program

AT&T's dividend yield has declined sharply, standing at 3.96%, which is only 7% higher than the sector median. This is significantly lower than competitors such as Verizon Communications (VZ) with a dividend yield of 6.29% and Orange (OTC: ORANY) with 5.31%. Additionally, while AT&T has the authority to repurchase up to $9.04 billion of its shares, it has been relatively inactive in its share buyback program, which may not be fully justified given its strengthening balance sheet [1].

Technical Analysis and Wall Street Ratings

Technical analysis indicates that AT&T is in the distribution phase, with its shares trading between the first and second standard deviation bands formed from the volume-weighted average price (VWAP). The Relative Strength Index (RSI) is in the overbought zone, and the stock has been moving sideways near a strong resistance level. Wall Street analysts have an average price target of $30.58, implying an upside of about 9.21% from the current stock price [1].

Long-Term Prospects

AT&T operates in the "Integrated Telecommunication Services" industry, which is relatively non-cyclical. However, the company's long-term prospects may be affected by the ongoing war between Israel and Hamas, which could impact consumer spending and economic stability. Additionally, the US economy is moving from the mid-cycle phase to the late-cycle phase, potentially reducing institutional investor interest in communication services stocks [1].

Conclusion

Given the current valuation, debt load, and technical analysis, AT&T appears to be trading at a premium. While its financial performance has been strong, the potential for a decline in profitability and the ongoing geopolitical uncertainties warrant caution. Therefore, a "Hold" rating is recommended for AT&T, with investors advised to closely monitor the situation and consider the risks before making an investment decision.

References

[1] https://seekingalpha.com/article/4805204-why-im-starting-at-and-t-coverage-with-a-hold-rating