AT&T's outlook for the year was worse than Wall Street expected. Why is its stock rising?

Mobile operator AT&T maintained its full-year profit forecast for the second quarter, although it was below analysts' expectations. Nevertheless, its shares rose slightly in the course of trading in New York. Investors reacted positively to the growth of subscribers, revenue growth and high free cash flow ahead of the forecast.

Telecom company AT&T reported that it still expects adjusted earnings for the year in the range of $1.97 to $2.07 per share. The forecast was below analysts' expectations, wrote Bloomberg: their consensus was $2.09 per share. 

Because of the forecast, the company's shares collapsed by more than 4% at the opening of trading in New York. But investors quickly bought back the fall: by noon in New York quotes AT&T appreciated by 0.5% to $27.57. Since the beginning of the year, the company's securities have grown by 21%, outperforming the S&P 500 index and telecom competitors;

The negative outlook overshadowed AT&T's strong growth in mobile subscribers in the second quarter: the company connected 401,000 subscribers, according to the report. That figure exceeded analysts' forecasts, who had expected a 301,000 increase, and contrasted with the results of its larger rival Verizon, which recorded customer churn in the same quarter.

Adjusted EPS for the quarter rose to $0.54, topping Wall Street's forecast of $0.52. Revenue increased by 3.4% to $30.8 bln versus expectations of $30.4 bln. Free cash flow totaled $4.4 bln.

AT&T also raised its full-year outlook for mobile services revenue and profit, as well as capital expenditures, but narrowed its forecast for revenue growth from its fiber segment. The company plans to repurchase $4 billion worth of its own shares in 2025, of which $1.3 billion has already been realized.

As the smallest of the three largest U.S. mobile carriers, AT&T has managed to close the gap with larger rival  Verizon thanks to a new "customer guarantee" program launched in January. It includes promises of more reliable calls, better service and better deals on smartphones - especially relevant as consumers become more sensitive to inflation, Bloomberg writes.   

AT&T continues to grow its home internet segment. Its Internet Air fixed wireless service, which uses a 5G network to provide Internet access indoors, attracted 203,000 new users - above market expectations of 169,000.  Additionally, the company added 243,000 fiber optic subscribers.

In addition, the telecom company is expanding its wireline infrastructure by acquiring the consumer division of Lumen Technologies, which specializes in providing optical access.

Of the 29 analysts covering AT&T stock, 18 advise them to buy (Buy and Overweight ratings). 10 are neutral (Hold) and only one advises them to sell (Sell). The average target price is 9.5% above the July 22 closing price.

This article was AI-translated and verified by a human editor