AT&T Inc plans to release its third-quarter financial results for 2025 on October 22, before market open (US Eastern Time). Investors are closely monitoring AT&T's operational metrics and its direction in strategic capital allocation.
Forecast
According to Bloomberg analyst forecasts, AT&T's third-quarter revenue is expected to be $30.85 billion, up 0.06% year-on-year; adjusted net profit is expected to record $3.9 billion, a slight increase of 0.58% year-on-year.
Previous Quarter Review
AT&T reported second-quarter earnings of 54 cents per share, exceeding the expected 52 cents. Revenue increased 3.4% to $30.8 billion, surpassing the projected $30.4 billion.
The company added 401,000 new mobile subscribers in the second quarter, above the anticipated 301,000.
The company reiterated that annual adjusted earnings per share would be between $1.97 and $2.07, which is lower than expected.
Additionally, AT&T expects tax savings of $6.5 billion to $8 billion by 2027, due to US President Trump's "Beautiful Package Act," exceeding market expectations. Of these savings, $3.5 billion will be used to build its fiber internet network, with coverage expected to reach 4 million locations annually by the end of 2026.
Current Quarter Outlook
Capital Allocation—Focus of Investor Attention
It must be pointed out that AT&T is no longer the overlooked "bargain" it was a few years ago.
The current dividend yield is slightly above 4%, and the price-to-free cash flow (P/FCF) ratio is approaching double digits again.
In comparison, the yield on the US 10-Year Treasury is about 4%, almost equivalent to AT&T's dividend.
Based on free cash flow calculations, AT&T's current free cash flow yield is approximately 10%, but future expectations are only about 8%.
On the surface, this seems decent, but given the company's revenue growth is below the inflation rate and heavy liabilities, this yield is not attractive.
This explains why the market is beginning to feel weary about AT&T's future return prospects.
Thus, the upcoming earnings report will focus on how the company boosts growth and profitability to:
Continue reducing leverage;
Maintain the stock repurchase plan initiated in the second quarter of 2025;
Continually increase dividends in the future.
While management previously stated during the earnings call that "the company is already in an ideal leverage range," this statement does not fully reassure long-term investors.
Especially amidst the backdrop of rate normalization and economic slowing, traditional telecom companies still face several unique risks.
"We continue to maintain our net debt to adjusted EBITDA ratio at the 2.5 times range. Net leverage at the end of the second quarter was 2.64 times, virtually unchanged from the first quarter's 2.63 times."
— Source: AT&T Inc 2025 Q2 earnings call
In contrast, Verizon management shows a more positive attitude, clearly stating to continue reducing leverage:
"Our net unsecured debt to adjusted EBITDA ratio is 2.3 times, down by 0.2 times year-over-year and unchanged from the previous quarter. We are still moving towards a long-term deleveraging target."
— Source: Verizon 2025 Q2 earnings call
Currently, AT&T's interest coverage ratio is about 4 times. Considering the company's operational stability in recent years, this is not bad.
However, management seems to prefer stock buybacks over debt repayment now.
In just the second quarter of 2025, the company repurchased nearly $1 billion in stocks and plans a cumulative buyback of $4 billion by year-end.
Calculated on a quarterly rhythm, the annualized repurchase scale is about $6 billion.
Meanwhile, Verizon has not yet restored its buyback plan until reaching the ideal leverage level.
Currently, AT&T needs to pay about $8.2 billion in dividends annually, plus repurchase expenditures, totaling about $14.2 billion in shareholder returns.
Under the fiscal year 2025's expected free cash flow of approximately $16 billion, only $2 billion remains available for acquisitions, debt repayment, or retaining cash reserves.
Additionally, as the dividend yield gap with Verizon narrows, AT&T faces market pressure to increase dividends.
Challenges in Free Cash Flow Growth
Looking ahead to the next few quarters, investors should pay attention to the continued growth ability of free cash flow.
AT&T has seen lackluster postpaid mobile subscriber growth in the first half of the year, with the market's focus gradually shifting to the broadband business.
In 2025, broadband business is expected to achieve mid to high double-digit growth, mainly from fiber and 5G/4G LTE based Internet Air home broadband.
"We added 243,000 fiber users and 203,000 Internet Air users in the second quarter, totaling nearly 450,000 new subscribers."
— Source: AT&T Inc 2025 Q2 earnings call
However, fiber business ARPU growth has markedly slowed—quarter-on-quarter growth in the second quarter was only 0.5%, which will be one of the most critical indicators in the coming quarters.
The importance of ARPU lies in: AT&T's adjusted operating margin has not changed much in recent years, and investors are starting to worry about whether the company can genuinely profit from its fiber and 5G investments.
Although AT&T's stock performance is better than Verizon, the latter's quarterly profit margins are higher and less volatile.
If this trend continues, Verizon may continue to outperform AT&T in the future.
DirecTV Sale Provides One-Time Cash Inflow
In July this year, AT&T completed the sale of the remaining holdings in DirecTV.
The company reports initial cash income of $7.6 billion, with over $4 billion expected to be recovered by 2025.
However, this cash was recorded under investment activities and will not be included in free cash flow calculations.
This means it is only a temporary boon for shareholders, not a sustainable source of earnings.
Analyst Perspective
Institutional views on the third-quarter outlook are predominantly positive, with several research institutions maintaining "buy/outperform," highlighting fiber penetration and improving cash flow certainty.
Reuters and LSEG previews point out that the focus for the third quarter is on the stability of wireless ARPU and the quality of fiber net additions, with the full-year free cash flow guidance of over $16 billion being recognized by the market; Zacks and Motley Fool emphasize wireless service revenue growth in the 3%-4% range, the stability of ARPU and churn rate, and fiber net additions remaining a key variable in driving third-quarter fundamental improvements; market price target adjustments are also positive, with Raymond James raising its target price to $31 after the second quarter, and Bank of America Securities maintaining a target of $32 and favoring fiber and cash flow execution.
Morgan Stanley's research indicates that the core observation points for the third quarter are the increase in fiber density, moderate ARPU growth, and capital discipline, maintaining a relatively positive rating and outlook. A minority neutral opinion cautions the sustainability of wireless revenue growth and potential disruptions from promotional strategies, but overall the bullish camp believes that as long as promotional structures become more rational and fiber installations do not see a significant rise in marginal costs, third-quarter profits and cash flow are likely to remain stable.
This content was generated based on Tiger AI and Bloomberg data and is for reference only.