AT&T Inc. (T) shares closed Monday down 1.23% at $23.29, underperforming a rising broader market as investors rotated out of telecom stocks ahead of the Federal Reserve's next interest rate decision. The stock ticked up to $23.31 in early premarket trading Tuesday, but the sector remains under pressure from rate sensitivity and a preference for growth-oriented tech names.
Telecom stocks broadly struggled on Monday. Verizon (VZ) shares dropped 2.16%, while the S&P 500 rose 1.65% and the Dow Jones Industrial Average gained 0.92%. The rotation out of defensive sectors like telecoms into technology and AI-related stocks reflects market positioning ahead of the Fed's policy announcement, which could signal the trajectory of interest rates.
AT&T is traditionally viewed as a yield and defense play, appealing to investors seeking stable dividends. However, when growth stocks lead, the telecom giant often lags. The company's dividend yield currently stands at 4.77%, but rising bond yields can diminish the appeal of such income-oriented equities. Additionally, AT&T carries a substantial debt load, making it sensitive to interest rate changes.
Despite the near-term headwinds, AT&T bulls point to solid first-quarter results. Sales reached $31.5 billion, and free cash flow came in at $2.5 billion. The company added 294,000 postpaid phone customers in the quarter. AT&T reaffirmed its long-term targets, including over $18 billion in free cash flow for 2026, an annual common dividend of $1.11 per share, and $8 billion allocated for share buybacks. The company also said it is on track to reach more than 40 million fiber locations by 2026 and 60 million by 2030.
Bearish arguments remain, however. AT&T ended the first quarter with $138.4 billion in total debt and $126.4 billion in net debt. The company is guiding for $23 billion to $24 billion in capital expenditures this year, with significant spending on fiber and wireless upgrades. If interest rates stay elevated or competition in wireless and broadband intensifies, leading to more aggressive promotions, the stock could continue to trade at a discount to its peers.
AT&T shares trade at roughly 7.8 times earnings, with a price-to-earnings ratio that reflects market concerns about debt and capital intensity. Analysts tracked by Google Finance rate the stock with 13 buys, 6 holds, and no sells, giving it a 12-month average price target of $31.07. That implies upside of about 33% from Monday's close.
The next major catalyst for AT&T is its second-quarter earnings call, scheduled for July 22 at 8:30 a.m. ET. Investors will be closely watching free cash flow, fiber net additions, and postpaid phone metrics. These numbers will be critical in calming nerves about the company's debt load, interest rate exposure, and capital spending plans.
