AT&T | Fundamental Analysis | Must Read...

AT&T's stock price hit a 52-week low of $24.54 at the beginning of the month after the company postponed the rollout of its C-band spectrum, a component of its new 5G network, waiting for an aviation safety review. As of this writing, the company's stock remains around $25, allowing it to buy the stock while its price declines.

But the decision to buy the stock is not a clear-cut one, because today's AT&T is a company at a crossroads. CEO John Stankey, who took over the company last year, is returning AT&T to its telecommunications roots after his predecessor decided on a series of costly entertainment-related acquisitions.

These acquisitions burdened the company with huge debt as AT&T undertakes the costly rollout of its 5G network. However, despite the challenges, there are plenty of reasons to consider investing in this venerable telecom titan.

A key reason to consider AT&T stock is its wireless business, which is experiencing strong growth. Q3 results showed the biggest increase in net additions of postpaid subscribers in more than a decade. The net addition of postpaid subscribers is a key metric because postpaid subscribers are the most valuable in the telecommunications industry. The third quarter was the third consecutive quarter of growth in net postpaid additions, reaching 928,000.

Thanks to subscriber growth, AT&T's mobile division has seen steady service revenue growth since reaching a pandemic low in the second quarter of last year. In fact, the company's service revenue for 2021 exceeds its 2019 pre-pandemic level.

AT&T's strong customer growth means the company is succeeding against its opponents in the competitive U.S. telecommunications market. And AT&T isn't just acquiring customers, it's retaining them. In the third quarter, the company maintained postpaid subscriber churn at a record low of 0.72%.

AT&T is still in the early stages of 5G adoption, so it has a chance to keep growing its customer base. And because it needs newer 5G-enabled cell phones to use its 5G network, AT&T could get additional growth from equipment sales. The company's equipment revenue in the third quarter was $4.6 billion, up 15 percent year over year.

Part of the company's success comes from offering more expensive wireless plans bundled with HBO Max, a streaming service owned by AT&T's WarnerMedia entertainment division. WarnerMedia's segment is recovering in 2021 after a pandemic-induced 13.7 percent drop in revenue in 2020.

WarnerMedia's third-quarter revenue rose 14% year over year to $8.4 billion. The segment was helped by five straight quarters of subscription revenue growth since the launch of HBO Max last May.

WarnerMedia's direct-to-consumer (DTC) division, which includes HBO Max, reached 69.4 million global subscribers, the highest since the launch of HBO Max. This increased DTC subscription revenue by about 25 percent year-over-year.

As part of the company's decision to concentrate on its telecommunications business, AT&T will merge WarnerMedia with Discovery into a new entertainment company, to be called Warner Bros. Discovery. AT&T intends to maintain its partnership with Warner Bros. Discovery after the merger, which will allow AT&T to continue to offer its packages. Investors will benefit by receiving shares of Warner Bros. Discovery.

Despite its successes, the company, which is in transition, has bumps in the road to recovery. When AT&T loses revenues from WarnerMedia after the merger is completed in mid-2022, subsequent year-over-year comparisons will likely show declining revenues. That's what happened with the third-quarter earnings results.

AT&T's total revenue for the third quarter fell 5.7% year over year, from $42.3 billion to $39.9 billion. The decline was due to the company's decision to spin off its video division, another entertainment acquisition that included DirecTV. Excluding this segment, AT&T's third-quarter revenue would have been up 4.7% year over year.

In addition, there is AT&T debt. Although the company is reducing debt, the 5G rollout is costly. AT&T spent more than $23 billion in a government auction in February to acquire spectrum for its 5G network. That brought its total debt to $179 billion in the third quarter, up from $157 billion at the end of 2020.

But AT&T has consistently generated billions of dollars of free cash flow each quarter, allowing it to meet its obligations. In the third quarter, free cash flow was $5.2 billion, and the company is on track to reach about $26 billion in free cash flow this year.

Patient investors, prepared for the long term, can expect AT&T to be financially stronger while gaining shares of the new, growing entertainment company. Given all the positives, this telecom company stock is a worthy investment.