AT&T shares trade at 7.2 times earnings, a significant discount to the 22.3 times median for the S&P 500, while the stock has lost 8.8% over the past year against a 17.3% gain for the broader index. This divergence leaves investors weighing whether the telecommunications giant represents a deeply discounted opportunity or a fair price for a stagnant operation.
The company's core business remains profitable, with AT&T retaining 20.6% of sales as operating profit over the last twelve months, slightly above the 18.5% median for the S&P 500. The Communications segment drives this performance, accounting for 96% of fiscal 2025 revenue. Valuation metrics relative to cash flow are similarly compressed; AT&T trades at 3.9 times operating cash flow compared to the S&P 500's 14.7 times.
Despite these margins, net income has been inflated by factors outside day-to-day operations. Net profit reached 16.9% of sales over the last twelve months, well above the three-year average of 10.8%, while operating margin stayed flat at 20.6% against a three-year average of 20.2%. Top-line growth remains slow, with revenue rising just 2.6% over the last year, pacing behind the median S&P 500 company's 8.3% growth.
The legacy copper-based services unit continues to shrink, with service revenue in that segment falling 26% in the second quarter of 2026 from a year earlier. AT&T is replacing these lines with fiber, which management called its largest expansion year in a July call, targeting 8 million new locations. More than 4 million of those sites were acquired from Lumen.
The Advanced Connectivity segment, which houses newer services and generates over 90% of service revenue, grew 5.1% in the second quarter of 2026. Management expects this unit to grow at least 5% for the full year and projects $4 billion in annual cost savings by the end of 2028.
However, the low price-to-earnings ratio ignores the company's substantial leverage. AT&T carries debt equal to 104.3% of its market value, compared with just 20.6% for the S&P 500 median. In July, management raised its 2026 buyback plan to approximately $10 billion from $8 billion, pulling forward repurchases originally scheduled through 2028.
Combined with dividends, these payouts total about $18 billion in 2026, a figure management states is essentially 100% of its free cash flow outlook. Following the completion of its EchoStar spectrum purchase on July 28, management noted that net debt would rise to about 3.2 times adjusted EBITDA, up from 2.68 times at the end of the second quarter.
With Advanced Connectivity growing at its targeted pace but leaving little remaining free cash flow after payouts, investors will focus on whether AT&T can meet its full-year outlook of $18 billion or more in free cash flow in its next quarterly report.