When AT&T reports third-quarter earnings on Thursday, many investors will again focus on wireless subscriber additions. But one new bright spot for AT&T stock could be its growth in fiber-to-the-home broadband services.
In the June quarter, AT&T added 316,000 fiber broadband subscribers, topping estimates of 215,000. For the September quarter, analysts estimate fiber broadband subscriber additions of 330,000.
In 2022, AT&T aims to build out fiber broadband services to 4 million homes. At that pace, analysts say fiber broadband services could reach 50% of its service footprint in a few years. Fiber-based broadband is much more competitive with cable TV companies, such as Comcast.
AT&T Stock: Early 2023 Guidance?
When AT&T earnings are released on Thursday, preliminary 2023 guidance will be key amid higher interest rates, says Bank of America analyst David Barden.
"The quarter will be shaped by the challenging macro backdrop and competitive landscape," he said in a report. "The company has been cautious about updating its 2023 guide given the uncertain macro, but investors will want to know if the outlook is unchanged or deteriorating. We will look for management to comment on inflationary pressures across its business and any impact on consumer collection trends or margins. We are interested in how higher rates might impact capital allocation between debt reduction and network investments."
Barden added: "(In Q3) wireless service revenue will likely increase from both a growing subscriber base and higher ARPU. In wireline, fiber expansion should drive broadband growth, while the company focuses on maximizing cash flow from its non-fiber footprint."
Bright Spot In Wireless Subscribers
Meanwhile, AT&T's wireless subscriber growth has been a bright spot. AT&T has been adding the most "postpaid" phone subscribers for several quarters, topping that of rivals T-Mobile US and Verizon Communications. But some analysts fret about how aggressive promotions could impact AT&T earnings.
AT&T stock analysts polled by FactSet expect the company to add 552,000 postpaid phone subscribers in the third quarter vs. 928,000 in the year-earlier period. Postpaid subscribers usually have unlimited monthly data plans.
When AT&T spun-off satellite broadcaster DirecTV and WarnerMedia, part of the reasoning was to invest more in 5G wireless services. AT&T also had more money available to build out fiber-to-the-home broadband services.
However, AT&T stock has retreated more than 17% this year. AT&T stock sold off in July after the company lowered 2022 guidance for free cash flow. FCF growth is key for AT&T's dividend. Shares climbed 1.9% to close at 15.60 on Tuesday.
AT&T earnings for the September quarter are expected to fall 7% to 61 cents a share.
AT&T Stock: Dividend Key For Investors
And even if AT&T beats on both wireless postpaid subscribers and fiber broadband subscribers, it may not be enough to spark a rally in AT&T stock.
The company's third-quarter revenue is expected to drop 25% to $29.8 billion owing to the spinoff of WarnerMedia and DirecTV. AT&T stock analysts expect earnings before interest, taxes, depreciation and amortization to come in at $10.47 billion.
"While AT&T's dividend yield is attracting notice, the guidance cut last quarter, sensitivity to interest rates, uncertainty for 2023 free cash flow and lack of excess capital the next few years as management focuses on reducing debt leverage compounds concerns regarding growth, competition and capital intensity in wireless," Credit Suisse analyst Douglas Mitchelson said in a note to clients.
AT&T stock holds a Relative Strength Rating of only 29 out of best-possible 99, according to IBD Stock Check-Up.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
