AT&T Stock (T): 11% Cash-Flow Yield, $126B Debt, a Strong Q2 — Cheap Buy or Value Trap?

AT&T (T) Q2 2026 — AT&T beat on Q2 (adjusted EPS $0.65 vs ~$0.59), added a record 646K internet subscribers (367K fiber + 279K fixed wireless) and 432K postpaid phone lines, grew free cash flow to $4.7B, and accelerated buybacks toward ~$10B — the stock popped ~5% but is still ~30% off its 12-month high near $30. AT&T (T) — a ~$162B connectivity utility — slid ~30% to a low near $20.50 before this strong Q2 print bounced it back to ~$23. At ~6x EV/EBITDA and an ~11% free-cash-flow yield, with a covered ~4.8% dividend and accelerating buybacks, the investment-led fiber-and-wireless strategy is visibly working. But it is still a ~2%-growth telecom carrying $126B of net debt. THE CALL: BUY (3/5, CHEAP CASH FLOW, HEAVY DEBT) — base-case value ~$30 vs ~$23 today. KEY METRICS: - Q2 2026: revenue $31.6B (+2.3% YoY); adjusted EPS $0.65 (beat ~$0.59), GAAP EPS $0.66 (up from $0.62); adjusted EBITDA $12.3B (+5.2%) - Free cash flow $4.7B in Q2; FY2026 guide $18B+ (rising to $21B+ by 2028) — an ~11% FCF yield at ~$23 - Record 646K internet net adds (367K fiber + 279K fixed wireless); 432K postpaid phone adds, churn just 0.86% - Fiber passes 38.6M locations, on track for 40M+ by end-2026 and 60M+ by 2030; 42.5% convergence (home internet + wireless) - Dividend $1.11/yr (~4.8%, only ~43% of FCF); accelerating buybacks to ~$10B in 2026; $45B+ total capital return 2026-2028 - Net debt $126.4B (~2.6x adjusted EBITDA, targeting the 2.5x range); all FY2026-2028 guidance reiterated (adj EPS $2.25-$2.35 in 2026) - Peers: AT&T ~6x EV/EBITDA vs Verizon ~7.7x, T-Mobile ~11.6x; AT&T has the highest FCF yield (~11%) and, on a like-for-like basis, the lowest leverage - Owner-earnings / free-cash-flow DCF (discount 9-11%, base 10%; net of the $126B debt): base ~$30, bull ~$37, bear ~$24 (≈ price); prob-weighted ~$30 vs ~$23 - Wall Street: Moderate Buy, average target ~$29-30 (range $18-$36) — our BUY (3/5) is aligned, at the constructive end What to watch: free cash flow holding above $18B and net debt falling toward the 2.5x target — plus continued fiber and postpaid growth; the risks are capex creep, an adds stall, or costlier refinancing on the debt Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.