Our target price of $32 for AT&T is based on the average of the following valuation methodologies (rounded to the nearest $1 per share):

Our DCF analysis uses a weighted average cost of capital (WACC) of 7.4% and a consolidated terminal growth rate of 1.5% to arrive at a firm value estimate (adjusted for other items) of roughly $362 billion. We subtract net debt of around $134 billion to arrive at an equity value of around $228 billion, or ~$32 per share.

We apply a 7.0x EV/EBITDA multiple on our pro forma 2026 OIBDA estimate of ~$47 billion. We believe large-cap communications and media in our coverage universe should trade at 5x-10x our 2026 EBITDA depending on a number of factors including the level of growth and profitability. We reduce the firm value of $331 billion by adjusted net debt to reach an equity value of $197 billion or ~$29 per share.

We use a P/FCF multiple of 14x our normalized 2026 FCFPS estimate of $2.42 for a value of ~$34 per share.

Industry risks include: the intensity of competition across wireline, wireless, and media segments could increase or decrease beyond what is anticipated in our models; distressed carriers restructure; competitive pricing among telecom segments; competition within AT&T's local business as CLECs take advantage of resale relationships. Other risks include: execution risks from its recently completed acquisitions, inability to reach its synergy targets potentially providing a risk for the share price and valuation; a fiber strategy that could pressure FCF generation if it accelerates the build-out plan; and offering an IP video service that carries execution risk of rolling out a new service. Also, AT&T's financial results and equity value could be diluted by a rise in interest rates.

The risks to our specific thesis and target price include: 1) competition in wireless further weighing on results; 2) significantly higher rates that could reduce the appeal of the dividend yield and raise its interest cost; 3) legacy wireline revenues and/or capital spending weighing on free cash flow generation. The potential for economic weakness and recession to follow remains a risk to our financial forecasts and valuation multiples for the company as well as the sector.

We recognize the WSJ investigation into lead sheathed cabling used in the past by the Telcos represents a potential financial risk (if anything material) that could negatively impact AT&T’s financial outlook. 

We are unable to specifically determine risk at this time and include a base-case scenario analysis to incorporate some potential for risk within our valuation framework. If the financial risk is immaterial or less than our outlook, AT&T shares could outperform our value expectation and if the financial risk is greater than we assessed, then AT&T shares could underperform our valuation assessment and potentially trade below the current share price. 

If the impact on the company from any of these factors proves to be greater or less than we anticipate, the stock will either outperform or underperform our target price.