AT&T Inc. (NYSE:T) stock looks poised to regain its 2017 high after the wireless communications giant on Tuesday delivered its first earnings bear in five quarters.

T stock got a much-deserved boost, rising as much as 3% in the after-hour session Tuesday, breaking above $37 on strong volume, thanks to better-than- expected second quarter of 2017 results.

The Quarter That Was

The Dallas, Texas-based company, which has suffered slowing growth amid intensified competition from T-Mobile US, Inc. (NASDAQ:TMUS) and Sprint Corporation (NYSE:S), posted adjusted second-quarter earnings were 79 cents per share, up from 72 cents a year ago, with revenue falling 1.7% to $39.8 billion. Wall Street was looking for a profit of 74 cents on $39.80 billion in revenue.

Of that total, wireless revenue was flat at $9.73 billion, while legacy voice and data service revenue fell about 16% year over year to $3.5 billion. Despite the overall inline revenue, it’s encouraging that AT&T was still able to meet expectations even as it continues to scale back in legacy wirelines and consumer mobility business.

The company was able to offset the revenue weakness by achieving 4.4% improvement in operating expenses, which fell to $32.5 billion from $34 billion last year.

Making the Best of a Bad Situation

Digging deeper into the segment numbers, the company’s wireless business added 2.8 million net subscribers. Of that total, 2.3 million were in the U.S., while 476,000 were from Mexico. Notably, U.S. wireless subscribers achieved its best-ever postpaid phone churn of 0.79%, while Total postpaid churn was 1.01% — both above Street estimates.

The company lost only 89,000 postpaid phone subscribers. Not only did that total narrow its loss from 180,000 in the year-earlier-period, it also topped analysts forecast for a loss 256,000 postpaid subscribers.

On their own, these numbers aren’t breathtaking. But when taken into context with respect to dominance of T-Mobile, AT&T doesn’t appear to be in the sort of dire straits T-Mobile’s boastful CEO John Legere has implied. In T-Mobile’s own Q2 results released last week, the company added 1.3 million total net subscribers, of which branded postpaid net adds were 817,000 and postpaid phone net adds were 786,000.

T-Mobile management insisted they would capture more than 100% of industry’s postpaid growth, meaning there would be nothing left for either AT&T or market leader Verizon Communications Inc. (NYSE:VZ). But AT&T’s results, combined with the improving churn rate, suggests otherwise. The company’s wireless business is making up for shortfalls elsewhere such as in the landline U-verse TV service, which shed 195,000 subscribers.

Likewise, DirecTV satellite TV business also took a big hit, losing 156,000 subscribers compared to a 342,000 gain last year. AT&T is not immune to the rash cord-cutting caused by the growing popularity of Netflix, Inc. (NASDAQ:NFLX) and Hulu.

The company is feeling the same pain felt by the likes of Time Warner, Inc. (NYSSE:TWX) and Comcast Corporation’s (NASDAQ:CMCSA). T&T’s new DirecTV Now internet service, however, added 152,000 subscribers. It would seem the company’s bundling efforts — packaging the online video service with wireless products — is paying dividends.

Reason to Bet on AT&T Stock

T stock closed in Tuesday’s regular session at $36.22, but has fallen almost 15% year to date, trailing 10% rise in the S&P 500 index. Nevertheless, from a risk-versus-reward perspective, given that T stock is priced at a forward P/E ratio of just 13, which is six points below the S&P 500 index, there’s tons of untapped value in these shares, thanks to AT&T’s improved cost structure.

What’s more, AT&T’s proposed $85 billion acquisition of Time Warner which will help diversify AT&T revenues, should also improve its prospects. Combining AT&T’s distribution network with Time Warner’s premium television content gives AT&T a powerful portfolio to go with its wireless and pay-TV business.

Bottom Line for T Stock

Ahead of the quarter, T stockholders were looking for confirmation that AT&T deserves more time to deliver the value the company has promised it would from its numerous deals. In that vein, AT&T delivered.

As such, I continue to expect T stock to reach $40 per share by year’s end, delivering more than 10% returns, which is solid value when combined with the company’s robust dividend yield of 5.37%.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.