AT&T vs. Verizon: Which Telecom Stock is a Better Choice?

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TThe telecommunications industry in the United States is currently going through a change, as telecommunications giants like AT&T and Verizon divest their non-core assets. These companies are increasingly focusing on the deployment of 5G networks.

Using the TipRanks stock comparison tool, we’ll compare two telecommunications companies, At&T and Verizon, and see what Wall Street analysts think about those stocks.

AT&T (S&P 500: T)

AT&T is a global provider of telecommunications, media and technology services. The company made the news this year due to the divestiture of its assets. Earlier this year, the telecommunications giant announced the split of its video business in the United States and the formation of a new company, “New DirecTV”, in partnership with private equity firm TPG Capital. The transaction was valued at $ 16.25 billion.

Likewise, last month the company announced the split of its WarnerMedia unit and the unit’s merger with media company Discovery (DISCA). The split would result in the formation of a new company in which AT&T shareholders will own 71% of the combined company while Discovery will own the remaining 29%. The transaction will generate $ 43 billion for AT&T in cash and debt.

AT&T is expected to release its second quarter results on July 22. AT&T CFO Pascal Desroches briefed the company’s shareholders last week at the Credit Suisse Communications conference.

Desroches said: “… over the past few quarters, AT & T’s mobility strategy of focusing on the long-term value of its high-value customer base has successfully reversed previous subscriber losses.

Regarding WarnerMedia, he expects second quarter results to improve from last year’s quarter, which was hit hardest by the pandemic. Desroches reiterated the planned international launch of HBO Max and said he expects it to meet its targets of 67 to 70 million HBO Max customers by the end of this year.

The company reaffirmed that the current dividend will not be reset until the deal with WarnerMedia is concluded. However, Desroches added that after the transaction closes, the dividend will offer an attractive return in the 95th percentile of dividend-paying stocks.

AT&T had reduced the dividend payout ratio following the WarnerMedia spin-off and anticipates an annual dividend payout ratio of between 40% and 43% on free cash flow above $ 20 billion, after the close of the transaction.

Following the announcement of the WarnerMedia spin-off, Raymond James analyst Frank Louthan reiterated a buy on the stock. Louthan commented that the reduced dividend payout ratio implied “about a 45% reduction in AT & T’s dividend from current levels.”

According to Louthan, this was a departure from the company’s strategy of maintaining or increasing its dividends and “will likely stay on the minds of investors for many years to come.” However, the analyst said that with the possibility of a dividend readjustment in the middle of next year, he “would see four more payouts at current levels.”

The CFO also said the company plans to speed up implementation of C-band spectrum (for 5G) and expects to cover 200 million people over the next two years. The company also plans to double its fiber footprint to reach around 30 million customer sites by the end of 2025.

Desroches continues to expect AT & T’s revenue CAGR to be in the lower end of a long-term single digit from 2022 to 2024 and anticipates an average single-digit Adjusted EBITDA and Adjusted EPS CAGR, subject to the of the conclusion of the agreement with WarnerMedia. (See the AT&T stock chart on TipRanks)

Analyst Louthan commented on the outlook: “We remain positive on AT&T as we believe that the simplification of history and continued deleveraging creates shareholder value, as evidenced by both this deal and the previous decision by divest the DIRECTV platform. “

The consensus among Wall Street analysts is a moderate buy based on 7 buys and 6 takes. AT&T analysts’ average price target of $ 32.17 implies upside potential of about 12.3% from current levels.

Verizon (S & P500: VZ)

Verizon Communications is a provider of communications, technology, information and entertainment products and services with two lines of business, namely Consumer Group and Business Group.

The company’s consumer business line provides wireless and wireline communications products and services, while the business line provides data, video and conferencing services, business networking solutions and security and managed network services.

Verizon is expected to report its second quarter results on July 21. In the first quarter, the company reported $ 32.9 billion in revenue, with 4% year-over-year growth and adjusted EPS of $ 1.31 per share.

For fiscal 21, VZ expects wireless service revenues to grow 3% year-on-year, while service and other revenues are expected to grow 2% year-on-year. The company expects adjusted EPS to reach between $ 5 and $ 5.15 per share.

The company is increasingly focusing on deploying 5G with the combination of C-band and millimeter wave spectrum.

Verizon said in its call for results: “Our intention is to invest an additional $ 10 billion in C-band investment to accelerate the integration of this capacity into our network … by 2021 …”

A few days ago, the company’s business line launched its first commercial private 5G network solution in the United States, allowing businesses and public sector customers to bring 5G services to their premises.

Earlier this month, the company kicked off its 5G upgrade campaign by offering customers a 5G-capable mobile phone, in exchange for their old phones, on VZ’s unlimited plan.

Existing VZ customers could get a free iPhone (AAPL) 12 or Samsung Galaxy S21 5G compatible phone with the switch. Following the 5G upgrade campaign, Oppenheimer analyst Timothy Horan has reiterated a suspension of action.

Horan said of the campaign: “In the last quarter, only around 7 million VZ subs had C-band compatible devices. The goal is to migrate as many customers now to compatible devices before VZ deploys C-band spectrum to 100 million POPs [point of presence] in early 2022.

Additionally, Horan updated the company’s financial model and said, “The lowering of FY21 rev. and adj. 20bps EBITDA on timing adjustment for TracFone [acquisition] but offset by the increase in equipment sales. We are increasing the number of postal telephone subscribers by 100,000 through improved volumes and the new promotion should help. “

In September of last year, Verizon offered to buy TracFone, a unit of America Movil, for $ 6.3 billion. The deal has yet to get regulatory approval. TracFone is a wireless service reseller that provides government benefit program wireless services in select US states and targets low-income and value segment users. (See the Verizon stock chart on TipRanks)

The consensus among Wall Street analysts is a hold based on 2 buy and 8 take. Verizon analysts’ average price target of $ 60.57 implies upside potential of about 8.5% from current levels.

Final result

It is interesting to note here the perspective of business analysts. According to Horan, VZ has the second largest wireline market share after AT&T. Horan appears to approve the sale by VZ of its “non-core assets in order to focus on wireless and enterprise and on FiOS (its fiber voice / video / data offering) in its wired segment, and now services / content at added value “.

Meanwhile, Jeffries analyst Frank Louthan had commented after AT & T’s WarnerMedia spin-off: “We suspected that AT&T would sell some assets starting with Turner, given the hindsight it took for HBO Max. and at the studio on Analyst Day in March, but management appears to be accelerating VZ’s strategy of “renting” media rather than owning it. “

While analysts are sidelined from Verizon, they are cautiously bullish for AT&T.

Disclaimer: The information contained in this document is for informational purposes only. Nothing in this article should be construed as a solicitation to buy or sell securities.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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