What is T's Intrinsic value?

AT&T Inc (T) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, AT&T Inc's estimated intrinsic value ranges from $27.25 to $70.11 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $38.92 +42.9%
Discounted Cash Flow (5Y) $36.82 +35.2%
Dividend Discount Model (Multi-Stage) $28.48 +4.6%
Dividend Discount Model (Stable) $27.25 +0.1%
Earnings Power Value $70.11 +157.5%

Is AT&T Inc (T) undervalued or overvalued?

With the current market price at $27.23, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate AT&T Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.34 0.45
Cost of equity 5.4% 7.4%
Cost of debt 4.9% 5.6%
Tax rate 26.2% 27.0%
Debt/Equity ratio 0.62 0.62
After-tax WACC 4.7% 6.1%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 5.4% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $122,336 (FY12-2024) to $154,053 (FY12-2034)
  • Net profit margin expansion from 10% to 10%
  • Capital expenditures maintained at approximately 14% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $37 $384,210M 80.7%
10-Year Growth $39 $399,299M 65.5%
5-Year EBITDA $23 $283,725M 73.8%
10-Year EBITDA $28 $318,030M 56.7%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 69.7%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.4%
  • Long-term growth rate: 0.5%
  • Fair value: $28.48 (4.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.4% (Low) to 5.4% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $16 to $33
  • Selected fair value: $27.25 (0.1% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $33,370M
Discount Rate (WACC) 6.1% - 4.7%
Enterprise Value $544,443M - $703,148M
Net Debt $119,276M
Equity Value $425,167M - $583,872M
Outstanding Shares 7,196M
Fair Value $59 - $81
Selected Fair Value $70.11

Key Financial Metrics

Metric Value
Market Capitalization $195936M
Enterprise Value $315212M
Trailing P/E 16.53
Forward P/E 15.76
Trailing EV/EBITDA 6.55
Current Dividend Yield 414.36%
Dividend Growth Rate (5Y) -13.93%
Debt-to-Equity Ratio 0.62

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $11.67
Discounted Cash Flow (5Y) 25% $9.20
Dividend Discount Model (Multi-Stage) 20% $5.70
Dividend Discount Model (Stable) 15% $4.09
Earnings Power Value 10% $7.01
Weighted Average 100% $37.67

Investment Conclusion

Based on our comprehensive valuation analysis, AT&T Inc's weighted average intrinsic value is $37.67, which is approximately 38.4% above the current market price of $27.23.

Key investment considerations:

  • Strong projected earnings growth (10% to 10% margin)
  • Consistent cash flow generation

Given these factors, we believe AT&T Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.