Why AT&T Stock Popped Today

AT&T (NYSE: T) experienced a notable 4% increase in its stock price by 11:05 a.m. ET on Tuesday. This surge followed the company's announcement of a "strategic plan to drive sustainable growth and enhanced shareholder returns" that extends through 2027.

Among the key points AT&T shared in its announcement were:

• Establishing the largest fiber broadband network in the United States, which will reach over 50 million customers.
• Returning $40 billion to shareholders via dividends and share buybacks over the next three years.
• Launching this initiative with a $10 billion stock repurchase plan to be completed by the end of 2026.

AT&T's Growth Strategy

AT&T's growth strategy rests on two main pillars: expanding its 5G wireless services and enhancing its fiber broadband offerings. The company believes that the advanced technology it is deploying will enable faster download speeds and create a foundation for new products and innovations in artificial intelligence (AI). This approach positions AT&T as not only a communications company but also a player in the burgeoning AI sector.

On the financial front, AT&T expects its wireless revenue to grow at an annual rate of 2% to 3% until 2027, while the fiber business is projected to grow at a much faster rate in the mid-teens. Overall, the expected revenue growth from both segments combined should be in the low single digits.

The company's profit forecasts align closely with these revenue projections. AT&T anticipates that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will see a growth rate of 3% or better over the next three years. Additionally, it expects free cash flow to also increase at a rate of approximately 4% per year, rising from $16 billion in 2025 to more than $18 billion by 2027.

Is AT&T Stock Worth Investing In?

AT&T's financial outlook suggests it will generate about $51 billion in cash profits over the next three years, equating to roughly $17 billion annually. This figure will comfortably support the $40 billion that the company plans to invest back into dividends and share buybacks, which is likely to please income-focused investors.

To put this into perspective, an annual free cash flow of $17 billion against a market capitalization of $163 billion leads to a price-to-free cash flow ratio of under 10x. This valuation could attract value investors looking for strong opportunities. Furthermore, with a dividend yield of 4.9% and a growth rate projected at 4%, AT&T stock appears to be an appealing buy for many investors.

Rich Smith does not hold shares in any mentioned stocks. No affiliations are asserted by this publication regarding any stocks discussed.

AT&T, stock, growth