Should Investors Buy T Stock as Earnings Estimates Improve?

Earnings estimates for AT&T, Inc. T for fiscal 2026 and fiscal 2027 have moved up 1.29% to $2.35 and 1.18% to $2.57, respectively, over the past 60 days. The positive estimate revision depicts bullish sentiments about the stock’s growth potential.

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T Rides on Solid Wireless and Fiber Traction, Convergence Strategy

AT&T is aggressively expanding its fiber footprint. It added more than 1 million fiber locations in the second quarter. Total fiber locations reached are now 38.6 million. The company expects to exceed 40 million locations by the end of 2026 and reach more than 60 million by 2030. The acquisition of Lumen's mass-market fiber business has accelerated AT&T’s fiber expansion strategy.

Wireless remains a major contributor to overall growth. AT&T added 432,000 postpaid phone customers in the second quarter, with churn of just 0.86%. The company added 279,000 fixed wireless connections in the second quarter. The company has been taking several steps to become the customer's single connectivity provider by bundling home internet and wireless. In the second quarter, 42.5% of advanced home internet customers also had an AT&T postpaid wireless account. When customers get dependent on multiple services from a single vendor, it becomes difficult for them to change service providers. This higher switching friction lowers churn rate and boosts customer retention. This significantly boosts the company’s cross-selling opportunities as well.

AI Infrastructure Expansion Can Be a Growth Opportunity in the Long Run

The rising usage of Agentic AI is driving network traffic growth. To support the significant surge of data traffic, the companies need a network that can support near-real-time communication, high bandwidth and significantly greater uplink capacity. A major part of AI processing is expected to move closer to the end user, or the edge, to reduce latency. With a dense metro fiber network combined with nationwide wireless spectrum, AT&T can benefit from this AI infrastructure expansion initiative.

Major Challenges for T

AT&T's growth strategy is heavily reliant on continued investment in fiber and wireless infrastructure. The company is expanding fiber aggressively while also investing in its wireless network and spectrum. Such a high capex requirement may impact free cash flow growth in the near term.

AT&T is competing for both wireless and broadband customers. Rivals like Verizon and T-Mobile are also expanding network infrastructure and taking several approaches to drive customer addition. Verizon has also taken a convergence strategy to improve churn rate. Stiff competition in a saturated telecom market is impacting margins.

Amid this high investment requirement, AT&T’s leveraged balance sheet remains a major concern. Net debt-to-adjusted EBITDA was 2.68X at the end of second-quarter 2026, with total debt of $144 billion and cash and equivalents of $17.6 billion. Management expects leverage to rise to about 3.2X after the planned EchoStar spectrum acquisition, before returning to the 2.5X range within about three years. The company also plans $23 to $24 billion of annual capital investment and $10 billion of 2026 buybacks, leaving less flexibility if operating execution weakens.

Price Performance

AT&T has lost 14% in the past year compared with the Wireless National industry’s decline of 78.9%. The stock has also underperformed the Zacks Computer & Technology sector and the S&P 500’s growth during this period.

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The company has underperformed its peers like Verizon Communications Inc. VZ but outperformed T-Mobile, US, Inc. TMUS. Verizon has gained 9.3%, while T-Mobile has lost 29.2% year to date.

Key Valuation Metric of T

From a valuation standpoint, AT&T appears to be trading relatively cheaper compared to the industry and trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 9.86 forward earnings, lower than 33.07 for the industry.

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End Note

Rapid fiber expansion, healthy traction in the postpaid wireless business are major growth drivers. Effort to reduce churn through bundled product offering is a positive factor. Upward estimate revision underscores growing investors’ confidence on stock’s growth potential. However, fierce competition is weighing on margin. High capex requirement amid elevated debt obligation remains major concern. With a Zacks Rank #3 (Hold), AT&T appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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