AT&T (T 3.46%) stock jumped 4% through 11:05 a.m. ET Tuesday after outlining its “strategic plan to drive sustainable growth and enhanced shareholder returns” through 2027.
Among other revelations, AT&T says it will:
- Build the nation’s largest fiber broadband network, serving more than 50 million customers.
- Return $40 billion to shareholders through dividend payments and share repurchases over the next three years.
- Kick-start that effort with a $10 billion share buyback through the end of 2026.
AT&T’s grand plan
AT&T is taking a two-pronged approach to growth, focusing on 5G wireless communications and fiber broadband fixed-line. The cutting edge tech it’s deploying, says AT&T, “will support superfast download speeds and serve as a platform for new product and GenAI innovation” — essentially making AT&T not just a communications stock, but an artificial intelligence (AI) stock as well.
Financially, AT&T targets wireless revenue growth in the 2% to 3% range annually through 2027, with the smaller fiber business growing faster, in the mid-teens. Revenue growth averaged across the two prongs of the project should be in the low single digits.
Profits should grow at roughly similar rates, with AT&T forecasting “adjusted” earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at 3% or better across the three years. Free cash flow will grow similarly at about 4% per year, from $16 billion or more in 2025 to $18 billion or more in 2027.
Is AT&T stock a buy?
AT&T’s forecast envisions generating $51 billion in total cash profits over three years — about $17 billion per year. That should cover the $40 billion the company plans to spend on dividends and share buybacks over the period, pleasing income investors.
Consider that $17 billion in annual free cash flow on a stock valued at $163 billion also implies a price-to-free cash flow ratio of less than 10x, which should attract value investors to the stock. With a dividend yield of 4.9% and a growth rate of 4%, AT&T stock looks like a buy to me.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
