AT&T increasing investment in AI, plans to return $40B over 3 years

AT&T’s (NYSE:T) mostly positive Q4 results, which included a larger-than-expected number of new wireless subscribers and new fiber customers, continues to fuel gains in the telecom's stock, with shares putting in their best performance in 15 months.

"AT&T's full-year results show the value of smartly improving their operating model, whatever happens with [interest] rates.  Folks who noticed this sooner have been rewarded with solid gains and a good yield on cost, but even today's buyers can get 4.5%, supplemented by growth as AT&T's strategy captures and retains customers across their different services," said Seeking Alpha analyst Joseph Parrish. 

“We fundamentally win because our product is better, not on the price,” CEO John Stankey said on the company’s earnings call with analysts, addressing the increased competition in the wireless industry, specifically with Verizon (VZ) and T-Mobile (TMUS), the former of which added 568,000 new wireless subscribers last quarter. With the help of discounted premium plans that include 5G with high-speed fiber, AT&T (NYSE:T) added 482,000 new subscribers in the fourth quarter, making this the strongest quarter for the company.

To address increased demand for better connectivity, the company plans to increase investments by integrating artificial intelligence through its operations, presenting a "great opportunity with plenty of room to run for the business," CFO Pascal Desroches added on this morning’s call.

To trim expenses, the company recently made a request to the Federal Communications Commission to retire its copper networks by 2029 as it moves users to fiber optic, wireless, and satellite technology. The company also recently disclosed a deal to sell and leaseback underused facilities, generating more than $850M in cash proceeds. Both of these incentives will accelerate AT&T's (T) $3B cost-savings plan through 2027, and support the company's plan to return over $40B to shareholders.

And despite a $123.5B debt burden, the company trimmed its debt by $5.5B last year and maintained a 2.5x net debt/adjusted EBITDA ratio, which it expects to maintain through the first half of this year. 

"The take home here is that this income name continues to perform in line or ahead of expectations, and AT&T stock has responded in kind, finally edging back to the mid-$20s now," said Quad 7 Capital, investing group leader for BAD BEAT Investing.