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

In this article I will analyze and compare AT&T (T) and Verizon Communications (VZ) to determine which telecom stock is currently a better investment.

The telecom industry has emerged quickly over the last decade amid the rapid adoption of smartphone devices and internet penetration around the world. The telecom industry has also benefited from the COVID-19 pandemic because of the increasing usage of data services and acceleration of digitalization processes. 

The growth is forecast to continue, with the global telecom services market expected to reach $2.47 trillion in 2028, growing at a CAGR of 5.4% between 2021 and 2028, Research And Markets reports. The increasing demand for high-speed data connectivity and the fast spread of digitalization worldwide should fuel the industry's growth during the forecast period. 

With this in mind, I am going to analyze and compare two telecom stocks, AT&T Inc. (T) and Verizon Communications Inc. (VZ), to determine which is a better buy at current levels.

AT&T offers telecommunications, media, and technology services worldwide, operating through Communications and Latin America business segments. Verizon Communications Inc. provides communications, technology, information, and entertainment products and services across the globe. The company operates through two segments: Consumer and Business. 

Year-to-Date (YTD), both ‌AT&T and Verizon stocks are trading about 4% higher.

Recent Developments 

On April 8th, Discovery and AT&T announced that they had closed a $43 billion merger deal of their media businesses, launching a new company Warner Bros. Discovery (WBD). Under the terms of the deal, the new company merges WarnerMedia’s premium entertainment, sports & news assets with Discovery’s leading non-fiction and international entertainment and sports businesses, aiming to become a new key industry figure. However, shares of AT&T dropped sharply on Monday following the spin-off of its WarnerMedia business. In addition, AT&T experienced a series of downgrades from Wall Street analysts. For example, Morgan Stanley and Citi lowered T’s price target to $22 from $28, and Raymond James lowered AT&T’s price target to $26 from $32.

On March 21st, Verizon announced that it had signed a multi-year partnership agreement with Live Nation, focusing on 5G technology and ticket presale. Verizon CEO Hans Vestberg said, “Predicated on technology and our massive consumer base, this partnership will elevate the ecosystem of music – how fans engage, how artists produce and perform, and how venues deliver enhanced in-person experiences and scale them digitally.”

Recent Quarterly Performance & Analysts Estimates

The company’s total revenue for its fiscal fourth quarter of 2021 decreased 10.3% year-over-year to $41 billion, reflecting the impact of divested businesses. However, the company was able to beat the Wall Street consensus revenue estimates by $550 million. Besides, the telecom giant reported a Non-GAAP EPS of $0.78, surpassing Wall Street’s estimates by $0.03.

Furthermore, the company’s forward annual dividend payout currently stands at $1.11, which translates into a dividend yield of 5.72%.

For the first quarter, the analysts expect AT&T's EPS to come in at $0.68, down 21.33% year-over-year. Additionally, Wall Street expects the company's revenue to deteriorate by 32.80% YoY to $29.53 billion in the first fiscal quarter of 2022. 

For its fiscal fourth quarter ended December 31rd, 2021, Verizon's overall revenue climbed 4.8% year-over-year to $34.1 billion, topping the Wall Street consensus revenue projections by $120 million. The company's fourth-quarter Non-GAAP EPS has been reported at $1.31, beating Wall Street estimates by $0.03.

Besides, Verizon is expected to pay an annual dividend of $2.56 a share, which translates into a forward dividend yield of 4.73%. 

Analysts reached a consensus estimate of $1.35 EPS for the FQ1, implying a moderate 2.97% YoY growth. The $33.58 billion average revenue projection for the first quarter of 2022 represents a 2.17% increase year-over-year. 

Comparing Valuations

In terms of Forward P/E Non-GAAP, VZ is currently trading at 9.86x, which is about 20% higher than T's 8.24x. When it comes to Forward EV/EBITDA, T's multiple of 8.27x is 2% higher than VZ's 8.13x. 

It is also important to note that their Forward P/E and EV/EBITDA multiples are trading well above the sector’s median of 18.37x and 9.19x, respectively.

Finally, Verizon has a solid margin profile with 57.86% Gross Profit, 33.90% EBITDA, and 16.51% Net Income margins. These figures outperform AT&T's metrics of 52.74% Gross Profit, 33.60% EBITDA, and 11.89% Net Income margins.

Conclusion 

While AT&T and Verizon should capitalize on the telecom industry’s growth in the long term, I believe Verizon is a better investment at the moment based on its superior financials, higher forward growth rates, discounted valuation, and higher profitability.


T shares were trading at $19.32 per share on Thursday morning, down $0.10 (-0.51%). Year-to-date, T has declined -18.71%, versus a -6.25% rise in the benchmark S&P 500 index during the same period.



About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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