AT&T hosts an investor day Tuesday, with Wall Street analysts expecting the telecom giant to announce a stock buyback. With AT&T stock up 35% in 2024, the big question is whether a share repurchase program and an updated financial outlook will set up the company for more gains next year.
AT&T's free-cash-flow growth has stabilized, and its debt also has been lowered amid divestments. That sets the stage for an AT&T stock buyback announcement, analysts say.
Free-cash-flow growth also supports AT&T's sizable dividend. Meanwhile, the size of the AT&T stock buyback is a matter of debate on Wall Street. The investor day starts at 2 p.m. Eastern time.
At Morgan Stanley, analyst Simon Flannery said in a report: "We expect AT&T to announce a multi-year buyback program in the $5 billion to $8 billion range per year. AT&T appears to favor buybacks over returning to a dividend growth model at this time, citing an already competitive dividend, which offers a 5% yield. We think AT&T will be keen to maintain leverage at around the 2.5 times net debt to adjusted EBITDA range over time, which likely limits the size of any buyback program to free cash flow after dividends."
On the stock market today, AT&T stock traded about even in early trading.
"We look for $6 billion annualized buybacks beginning in 2025, assuming a flat dividend and maintaining 2.5 times debt leverage," said TD Cowen analyst Gregory Williams in a report.
He added: "The Street is looking for $8 billion in 2026 and $10 billion annually in outer years, though we believe AT&T won't be able to achieve such levels while also maintaining 2.5 times debt leverage, maintaining FTTH (fiber-optic broadband) builds, and accounting for DirecTV proceeds going away."
At JPMorgan, analyst Sebastiano Petti said in a report: "We expect the company to commence share repurchases in second half 2025 and $4 billion total in 2025 as well as $8 billion annually in 2026 and 2027. We see potential upside to our 2025 buyback estimate given the anticipated cash inflow from TPG acquisition of AT&T's 70% stake in DirecTV, but our 2026/2027 estimates could be a touch high."
How DirecTV Sale Impacts AT&T Stock
In October, AT&T agreed to sell its remaining 70% stake in satellite TV broadcaster DirecTV to private equity firm TPG for about $7.6 billion.
UBS analyst John Hodulik said in a recent report: "The DirecTV deal will impact EPS but we expect management to guide to FCF growth in 2025 at its December event. We estimate this will drive leverage to 2.5 times debt in first half 2025, supporting an estimated $20 billion of buybacks over three years."
In 2025, AT&T's free cash flow is expected to grow about 4% to $17.5 billion.
The company has increased investments in a landline fiber-optic network expansion. That's aimed at spurring broadband subscriber growth.
TD Cowen's Williams notes, though, that AT&T's wireless business is still its primary growth driver.
Another question heading into the AT&T investor day is whether the company plans to acquire fiber-optic networks in a similar fashion to rivals Verizon Communications and T-Mobile US.
Verizon Stock Buyback Delayed
Verizon also provides a sizable dividend. But a Verizon stock buyback has been delayed by debt payments tied to wireless spectrum purchases.
Meanwhile, AT&T stock holds a Relative Strength Rating of 85 out of a best-possible 99, according to IBD Stock Checkup.
The RS rating of Verizon stock stands at 61.
At its investor day in September, T-Mobile said it plans to deliver $50 billion in additional stock buybacks and dividends to shareholders, despite recent acquisitions. Germany's Deutsche Telekom owns a majority stake in T-Mobile.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
