Telecom giant AT&T (T 0.18%) slightly missed expectations for revenue and earnings when it reported its first-quarter results on Wednesday, but those headline figures don't tell the whole story. AT&T continued to win new wireless subscribers while keeping churn at record-low levels, and its broadband business impressed.

AT&T produced $3.1 billion in free cash flow during Q1, and it maintained its guidance calling for between $17 billion and $18 billion in free cash flow for the full year. With the stock trading for less than 7 times the midpoint of that range, investors are getting an incredible bargain.

Wireless momentum

While overall mobility revenue was flat in the first quarter, a drop in equipment revenue was entirely to blame. Mobility services revenue jumped 3.3% year over year, driven by AT&T's solid subscriber gains and rising revenue per user.

AT&T reported 349,000 net postpaid phone additions in the first quarter, while postpaid churn dropped to a record-low 0.72%. The company now has 71.6 million postpaid phone subscribers, and each of them on average spends $55.57 per month. Average revenue per user edged up 0.9% year over year in Q1.

AT&T's results are in stark contrast to those of Verizon. Verizon reported a net decline of 158,000 consumer postpaid phone subscribers in Q1. Verizon has lost subscribers in four of the past five quarters.

For the full year, AT&T expects to grow wireless service revenue by about 3%.

A two-pronged approach to broadband

AT&T's legacy wireline business is in perpetual decline. While AT&T is struggling to offset this declining revenue among business customers, the company is having much more success on the consumer side.

Consumer wireline revenue was $3.4 billion in Q1, up from $3.2 billion in the prior-year period. Within that total, broadband services generated $2.7 billion in revenue, up 7.7% year over year.

Demand for AT&T's legacy broadband services is shrinking, but the company's fiber internet service is picking up the slack. Fiber revenue grew by 19.5% in Q1 as AT&T added 252,000 net subscribers. Fiber now accounts for the majority of AT&T's consumer broadband revenue.

AT&T is also having no trouble boosting prices. The average revenue per user for the consumer fiber business rose 4.1% to $68.61, and the intake ARPU is now above $70.

Beyond fiber, AT&T has been dipping its toes into the fixed wireless business with its Internet Air service. Other telecom giants are betting more heavily on using their 5G networks to deliver home internet, while AT&T is using the service as a way to fill in gaps in its fiber network. Internet Air added 110,000 subscribers in Q1, a solid result for a business that was launched in select areas in August of last year.

Way too much pessimism

AT&T's results in both its wireless and broadband businesses will ebb and flow along with the economy. The company also has a debt-heavy balance sheet, which may be giving some investors pause. However, the stock appears priced for catastrophe, which doesn't make much sense to me.

AT&T's dividend is also appealing, in addition to being sustainable. The stock currently yields about 6.6%, and the dividend will consume just 46% of free cash flow this year based on the midpoint of the company's guidance. That leaves plenty left over for debt reduction.

AT&T stock has jumped 25% from its 52-week low,but there's plenty of additional upside if the company can keep putting up solid results.