With 2024 upon us, telecom stalwart AT&T (T -1.59%) looks like it’s turned a corner on a multi-year transformation. After John Stankey took over as CEO in July 2020, he refocused the company on its telecommunications business, divesting the entertainment assets acquired under previous management.
Because of this transition, the last few years weren’t kind to investors. The company cut its dividend in 2022, and for much of 2023, AT&T’s stock languished, remaining well below its 52-week high of $19.99 reached last April.
But shares gradually began to rise toward the end of 2023, and this year, the stock was upgraded by J.P. Morgan to overweight. So 2024 may be the year to pick up AT&T shares. Here’s a look into the company to determine if now is the time to buy.
AT&T’s customer growth
AT&T’s strategy for long-term business success is to grow customers for its 5G wireless and fiber optic internet products. Today’s digitally connected society should keep demand persistent for AT&T’s offerings. It’s just a matter of whether the company can win out against competitors to capture customers.
And in this regard, the telecom giant is doing well. Since John Stankey became CEO, AT&T has enjoyed 14 straight quarters of growth in postpaid subscribers, the telecom industry’s most valuable customer segment.
Moreover, customer growth for AT&T’s fiber-optic product has been astounding. The fourth quarter was the product’s 16th consecutive quarter with more than 200,000 net customer additions, and 2023 was the sixth straight year of over 1 million net additions.
This consistent increase in customers led to rising revenue. In AT&T’s wireless business, Q4 revenue was up 4.1% year over year to $22.4 billion. Fiber revenue rose an impressive 22% year over year to $1.7 billion.
Although fiber sales are still a small portion of overall revenue, under Stankey’s tenure, AT&T’s fiber business grew nearly 120% from $775 million in the third quarter of 2020, his first quarter as CEO, to $1.7 billion in Q4 2023. The company expects fiber adoption to propel its broadband business to at least 7% revenue growth in 2024.
Some key AT&T financials to consider
An outcome of its revenue expansion is AT&T’s free-cash-flow (FCF) growth, which reached $16.8 billion in 2023, an impressive $2.6 billion increase over the previous year. FCF provides insight into the cash available to invest in the business, repurchase shares, pay debt obligations, and fund dividends.
The last two points are most important for AT&T investors. FCF is expected to continue growing in 2024, hitting at least $17 billion according to the company’s outlook. This bodes well for the telecom titan’s continued ability to fund its dividend.
Meanwhile, paying down its massive debt load is key since AT&T’s debt obligations are one of the factors weighing on the company. Before Stankey became CEO, AT&T management spent billions of dollars acquiring entertainment businesses. This put the telecom giant into substantial debt, which was further exacerbated by AT&T’s need to spend billions more building out its 5G network.
The company has slowly chipped away at its debt levels. Its ratio of net debt to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is now below 3, and AT&T’s on track to reduce it to around 2.5 in the first half of 2025, which brings its debt load to a more manageable level.
Deciding on AT&T stock
AT&T had a solid 2023, which could prove to be the turning point in its transition back to a purely telecommunications business. Its debt levels are dropping, free cash flow is rising, and its consistent customer growth has enabled the company to increase revenue.
With AT&T on the upswing, Stankey noted on the recent earnings call: “The field is wide open to us as to where we wish to go and what we wish to do. And we will do what is in the most and best interest of the shareholder.”
Given the company’s current momentum, solid leadership under John Stankey, and attractive dividend with a robust 6% yield despite the cut in 2022, AT&T stock looks like a buy for 2024.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Robert Izquierdo has positions in AT&T and JPMorgan Chase. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.