Wondering if AT&T is a bargain or overpriced? Let’s dive in and see what’s really going on beneath the hood of this telecom giant.
AT&T’s stock has climbed 4.4% over the past week and is up 12.4% so far this year, signaling shifting investor sentiment and potential opportunities ahead.
Recent headlines around AT&T have centered on strategic moves in expanding its fiber and 5G networks, as well as fresh partnerships in the satellite connectivity space. These developments have caught market attention and added momentum to the stock’s recent price action.
On our valuation dashboard, AT&T scores a 5 out of 6 for undervaluation checks, which is impressive. However, before you lean on any single number, let’s break down how we arrive at this score and why there might be an even smarter way to value the stock by the end of this article.
The Discounted Cash Flow (DCF) model provides a way to estimate a company’s intrinsic value by forecasting future cash flows and then discounting them back to their present value. This approach helps investors better understand what the business may be worth today based on its long-term cash-generating potential.
For AT&T, the current annual Free Cash Flow stands at $21.8 billion. Analysts supply cash flow estimates for the next five years, and for years beyond that, Simply Wall St extends the forecast using a steady growth assumption. Over the next decade, AT&T’s free cash flow is projected to gradually rise, reaching roughly $24.8 billion by 2035 based on these extrapolations.
According to the DCF analysis, the estimated intrinsic value for AT&T shares is $56.36, which is substantially above the current trading price. This implies that, based on projected cash flows, the stock is trading at a steep 54.5% discount to its calculated fair value.
In summary, the DCF model points to significant undervaluation and highlights a potentially attractive opportunity for investors who believe in AT&T’s ability to deliver steady cash flows over time.
For established, profitable companies like AT&T, the Price-to-Earnings (PE) ratio is often the go-to valuation metric. It gives investors a sense of how much they are paying for each dollar of earnings and is particularly useful when the company has a solid track record of profitability, as it does here. Growth expectations and the risk profile of a business also influence what constitutes a “normal” or “fair” PE ratio. Higher growth and lower risk typically justify a higher multiple.
AT&T currently trades at a PE ratio of 8.2x. Compare this with the average PE ratio of its telecom industry peers, which is 12.6x, and the broader industry average of 16.6x. At first glance, this places AT&T well below both benchmarks, suggesting the stock might be relatively cheap by this standard.
However, relying on simple averages does not always capture what makes each company unique. This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio for AT&T is 12.3x, which adjusts for its specific earnings growth outlook, profit margins, industry dynamics, market cap, and risk profile. This makes it a more nuanced benchmark than just comparing with peers or the overall industry.
With AT&T’s current PE at 8.2x and the Fair Ratio at 12.3x, the stock is trading well below what would be anticipated considering all key fundamentals. This implies AT&T is undervalued based on its earnings potential.
Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives let you combine your perspective on a company, the story behind the numbers, with your own fair value assumptions and forecasts for future revenue, earnings, and margins. Each Narrative turns your view of AT&T into a financial forecast, which is then used to estimate a fair value. This helps you make more confident buy or sell decisions by comparing it to the current share price.
Narratives are easy to use and approachable tools available on Simply Wall St’s Community page, where millions of investors share and explore varying perspectives. What makes Narratives uniquely powerful is that they update dynamically as soon as new news or earnings arrive, automatically refreshing the analysis behind your view. For example, some investors see AT&T’s fair value as high as $34.00, driven by confidence in 5G and fiber growth, while others believe the right value is just $15.49, focusing on competitive threats and legacy risks. This is because their underlying stories and projections differ.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
