AT&T heads into its third-quarter report with an awkward split between operations and the stock. Last quarter's call was arguably the company's most confident in years: service revenue growth nearly doubled, EBITDA margin reached its highest level since the pivot to fiber and wireless, and buybacks were lifted by roughly a quarter. Since then the shares have fallen 3.8% while the S&P 500 gained 4.2%. The October 21 release, due before the open, has to show whether that acceleration was a new trend or a single strong quarter the market has already chosen to discount.
The Street is looking for earnings of $0.61 a share on revenue of $31.68 billion. That would mean 13% EPS growth and 3.2% revenue growth from a year earlier, which is solid for a mature carrier, though it also implies a step down from the $0.65 posted in the second quarter. The whisper number of $0.64 sits three cents above consensus. That suggests some investors expect results closer to last quarter's run rate than the published estimates assume. Management has reaffirmed full-year EPS guidance of $2.25 to $2.35, and consensus of $2.34 sits near the top of that range. With $1.22 already earned in the first half, a quarter in the low $0.60s keeps the high end within reach. The question is whether AT&T is comfortable enough to raise the range rather than simply reaffirm it again.
The operating details matter more than the headline beat. Last quarter, consolidated service revenue grew 2.7%, adjusted EBITDA rose 5.2%, and advanced connectivity service revenue accelerated to 5.1%. Postpaid phone net adds jumped to 432,000, and consumer postpaid account growth was the best in more than three years. Holding service revenue growth in that range and keeping margins near 39% would confirm the narrative. A slide back toward the 1% to 2% growth seen earlier in the year would weaken it. The business segment also deserves attention. Advanced connectivity revenue there turned positive at 1.8% after quarters of decline, and management said the unit had turned a corner. One more positive print would make that claim far more credible.
The weak spot is pricing. Fiber ARPU slipped 1.3% year over year as convergence bundles deepened discounts and the Lumen assets diluted the mix, and management warned the pressure would continue. That is the tradeoff in AT&T's strategy. Convergence, now around 42.5% of the base, should lower churn and raise lifetime value, but it costs revenue per customer in the near term. If fiber and fixed wireless volumes stay at record levels while ARPU holds roughly steady, the bargain looks sound. Steeper ARPU erosion would raise the question of whether growth is being bought. Rising device costs, which management said could lift prices and dampen demand, are another variable for wireless volumes.
The balance sheet adds a further layer. The EchoStar spectrum deal was expected to close by the end of July, and management projected net leverage rising to about 3.2x before working back toward 2.5x over roughly three years. Free cash flow, which beat guidance at $4.7 billion last quarter, needs to stay on pace for the $18 billion-plus annual target to fund both the debt paydown and the enlarged $10 billion buyback. Investors will also want a smooth handoff as the CFO prepares to retire at year end.
Sentiment has edged up from 5.5% bearish to 3.4% bearish, which is a modest change. The stock sits about 10% below its 200-day moving average and only a few percent above its post-earnings low of $21.96. That leaves expectations subdued enough that steady execution could be rewarded. The central issue is whether AT&T can show that its acceleration in service revenue and EBITDA survives fiber price pressure and heavier post-EchoStar leverage. If it does, the gap between the stock and the business becomes hard to justify.