AT&T Unveils Ambitious Plan to Reward Shareholders
Telecom giant AT&T has unveiled an updated strategic plan, outlining its financial guidance through 2027. The company expects to generate significant free cash flow during this period, with a substantial portion earmarked for shareholder returns.
A Shift in Strategy
After repositioning its business and balance sheet over the past few years, AT&T has shed non-core assets and invested in expanding its mobile and broadband businesses. The company has also been diligent about repaying debt, paving the way for a new era of shareholder returns.
Robust Growth Ahead
AT&T anticipates low single-digit revenue growth over the next three years, accompanied by a 3% or more annual increase in adjusted EBITDA. This growth will be fueled in part by expected cost savings of over $3 billion by 2027.
Free Cash Flow to Soar
The company plans to reinvest around $22 billion of its annual cash flow into capital investments between 2025 and 2027, positioning it to produce a growing stream of free cash flow. AT&T expects its free cash flow to total more than $16 billion next year, increasing by over $1 billion annually to reach more than $18 billion by 2027.
Financial Flexibility
With a targeted leverage ratio of 2.5 times, AT&T expects to maintain a healthy balance sheet, providing it with about $50 billion of financial capacity over the next three years. This will come from growing free cash flow, the sale of its stake in DIRECTV, and balance-sheet capacity.
Returning Value to Shareholders
AT&T plans to return more than $40 billion of this financial capacity to investors over the next three years. While maintaining its current dividend payment, the company will also initiate a $10 billion share-repurchase program in 2025, with another $10 billion authorized in 2027.
A Smart Move
With AT&T trading at a forward P/E multiple of around 10, significantly lower than the broader market, the share repurchases make financial sense. By retiring over 10% of its outstanding shares, the company could boost its earnings per share by a similar amount.
A Bright Future Ahead
AT&T’s turnaround plan has reached an inflection point, allowing it to start returning more cash to investors. While dividend investors may be disappointed, the company’s plan to repurchase stock could lead to a higher total return for investors in the long run, given the current undervaluation of its shares.
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