Giant telecom carrier AT&T (TFree AT&T Stock Report) has posted better-than-expected first-quarter results, though the Dow component, which has been a strong performer in recent weeks, sold off a bit on the news. Indeed, share net of $0.71 for the March interim came in a nickel ahead of our estimate and a penny above Wall Street's consensus view, thanks to surprising strength from the wireless segment, which has become the company's bread and butter.

Concerns have persisted that the wireless unit would lose market share against a backdrop of heightened competition from heavyweight Verizon (VZFree Verizon Stock Report) and a handful of smaller industry players. But these fears have proven to be largely unfounded, which is probably one reason why this large-cap name has shined of late. During the first quarter, postpaid net additions, a closely watched metric in the mobile space, came in well ahead of expectations, at 625,000, as more smartphones were added as part of AT&T's new “Next” early upgrade program. Moreover, customer churn was down sequentially, and operating margins were fairly healthy, despite pressures from higher handset subsidies and increased spending on network expansions.

Looking ahead, we expect the wireless momentum to persist in the coming quarters, as the “Next” initiative gains further traction and iPhone-related subsidies, which always have been relatively high, begin to level off. The traditional wireline business, meanwhile, should continue to improve, bolstered by the success of U-verse, the company's broadband, video, and IP telephone service that has been growing at a near-30% rate, and efforts to shore up the enterprise segment. U-verse, notably, is now generating annualized revenues of about $14 billion.

In light of the fine March-period showing, and benefits from AT&T's buyback program, we are raising our 2014 earnings estimate by a dime, to $2.75 a share, and our 2015 call by a nickel, to $2.90 a share. These figures reflect anticipated dilution from the recently completed deal for prepaid carrier Leap Wireless. That acquisition, while initially a slight negative, ought to be a major bottom-line catalyst over time, helping the company to attract more low-income consumers.

We continue to like AT&T shares for long-term investors, especially those looking for a top-quality yield play. In fact, the stock, we think, remains attractive at these prices.

About The Company: AT&T, formerly SBC Communications, is one of the world’s largest telecom holding companies and is the largest in the United States. Its traditional (SBC only) wireline subsidiaries provide services in 13 states, including California, Texas, Illinois, Michigan, Ohio, Missouri, Connecticut, Indiana, Wisconsin, Oklahoma, Kansas, Arkansas, and Nevada. The company also owns Cingular (now AT&T Wireless). It has made a number of acquisitions, including PacTel (April 1997), SNET (October 1998), Ameritech (October 1999), AT&T (November 2005), and BellSouth (December 2006). It operates a total number of consumer revenue connections of 36.4 million. In 2013, about 54% of its sales came from the wireless segment, while 46% stemmed from the wireline business.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.