AT&T (T) 25Q2 Update

AT&T reported 25Q2 GAAP EPS of $0.62, compared with $0.49 in the prior year period.  Non-GAAP EPS of $0.54 was down from $0.60.  I had projected GAAP EPS of $0.46 and non-GAAP EPS of $0.52.

Revenues increased 3.5% YOY to $30.8 billion, matching my estimate.  Net cost of revenues increased 16.4%, as a 19.2% increase in equipment costs, due to higher volumes and costs associated with the AT&T Guarantee, were only partially offset by a drop in other costs of revenues.  Thus, gross profit rose 1.9%, even though gross margin fell by 100 bp to 60.6%.  Other operating costs decreased 3.2% to $12.2 billion, primarily because of the non-recurrence of 24Q2’s impairment charge.  As a result, operating income jumped 12.9% to $6.50 billion and operating margin rose 180 bp to 21.1%.  Interest expense eased slightly, while equity in the net income of affiliates and other income, including distributions from DIRECTV (in accordance with its exit plan), increased 21.6 to $1.25 billion.  Thus, pretax income rose 19.8% to $6.1 billion and net income attributable to shareholders jumped 25.9% to $4.5 billion.

Management says that its converged offerings of wireless and fiber are resonating with customers.  AT&T upped its fiber rollout expectations to 60 million by the end of the decade (from 50 million).  On May 21, the company announced that it had agreed to acquire for $5.75 billion, the mass markets fiber-to-the-premises network assets of Lumen Technologies, which includes one million fiber subscribers across more than four million fiber locations.  It expects to identify an equity partner to co-invest in the business and expects to close the transaction in 26H1.  AT&T also expects to realize $6.5-$8.0 billion in cash tax savings from the OBBB Act, which it will use to accelerate its fiber buildout.  The company filed with the FCC to discontinue service across 10% of its (legacy copper) wire centers in 17 states.  It refined its guidance for segment performance and free cash flow, but lest its adjusted EPS target unchanged at $1.97-$2.07.  It expects $4 billion in share repurchases by year-end, up from $3 billion previously.

My 2025 projections are consistent with guidance.  They anticipate GAAP EPS of $2.48, up from $2.27 (due mostly to the 25Q2 beat, but non-GAAP EPS of $2.05 (vs. $2.16), as I have attributed more of the GAAP earnings increase to the DIRECTV sale.  For 2026, I project GAAP EPS of $2.22, up from $2.19, and non-GAAP EPS of $2.25, up from $2.22.

Since my last report, the stock has risen 3.7%, less than the S&P 500’s 9.3% advance.  Most of the under-performance has occurred since the beginning of July; but the stock has bounced back a bit since reporting 25Q2 earnings.

Based upon the gives and takes of the quarter, I am maintaining my price target of $29.  The price target is based upon a multiple of 13.0 times projected 2026 non-GAAP EPS.  The potential total return is 7.5%.  Accordingly, I am lowering my performance rating from “2” (Outperform) to “3” (Neutral).

This is a summary of my recent update report on AT&T, Inc. (T). To obtain a copy of the report, please reach out to me using the contact information provided below.

July 30, 2025 (Report published on July 28, 2025.)

Stephen P. Percoco
Lark Research
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