In this article, I have evaluated AT&T Inc. (T) and Verizon Communications Inc. (VZ) to determine which is a better telecom stock to buy in December. After comparing these stocks fundamentally, I think VZ can generate superior returns based on the factors discussed throughout this article.
Before comparing these stocks, let’s see what’s shaping the industry’s prospects.
Rising spending on the deployment of 5G infrastructures due to the shift in customer inclination toward next-generation technologies and smartphone devices is driving growth in telecom industry. Also, the global communication network has undoubtedly been one of the prominent areas for continued technological advancements over the past few decades.
As a result, the global telecom services is expected to expand at a CAGR of 6.2% until 2030.
The latest trend of cloud technology has enabled telecommunication organizations to migrate to the internet. The ground-breaking performance, scalability, flexibility, and economics of Exadata cloud is expected to enable telecom organizations to restructure their operations at a reduced cost and with better operational agility.
Therefore, the US Telecom market size is expected to grow at a CAGR of 3.7% until 2028.
T declined 9.8% over the past nine months compared to VZ’s marginal gain. T also declined 11.6% over the past year compared to VZ’s 4.4% returns.
Here are the reasons why I think VZ might perform better in the near term:
Recent Developments
During the recent quarter, T announced that it had launched AT&T Internet Air fixed wireless residential service and is expected to be in 30+ locations by the end of the year.
Conversely, on December 6, 2023, VZ and Zebra Technologies (ZBRA), a leader in digital solutions that accelerate business workflows, announced the launch of Zebra mobile device and software packaged solutions designed to help Verizon Private 5G customers reap the benefits of their networks even faster.
Recent Financial Results
For the third quarter ended September 30, 2023, T’s revenue declined marginally year-over-year to $1.06 billion. Net loss attributable to T increased 13.7% year-over-year to $36.90 million and loss per common share increased 12.7% year-over-year to $0.71. However, its gross profit increased 1.1% year-over-year to $50.91 million.
On the contrary, for the fiscal third quarter that ended September 30, 2023, VZ generated net income and total operating revenues of $4.88 billion and $33.34 billion, respectively. Moreover, its consolidated adjusted EBITDA grew marginally year-over-year to $12.24 billion. For the nine months ended September 2023, cash flows from operating activities and free cash flow increased 2.1% and 18.1% year-over-year to $28.80 billion and $14.63 billion, respectively.
Past And Expected Financial Performance
Over the past three years, T’s revenue declined at a 11% CAGR. Analysts expect T’s revenue to increase marginally this year as well as in the fourth quarter ending December 2023. Its EPS is expected to be $2.44 this year, $0.57 in the current quarter (ending December 2023) and $0.61 in the next quarter ending March 2024.
Conversely, VZ’s revenue has increased at a CAGR of 1.5% over the past three years. Its revenue is expected to increase 1.6% in the year ending December 2024. Its EPS is expected to be $4.70 this year and $1.09 in the current quarter (ending December 2023) and $1.14 in the next quarter ending March 2024.
Valuation
T’s forward EV/EBITDA multiple of 6.75 is lower than VZ’s 7.02. T’s forward EV/Sales of 2.40x is lower than VZ’s 2.52x.
Profitability
T's trailing-12-month EBIT margin of 21.72% is lower than VZ’s 22.87%. In addition, T’s trailing-12-month EBITDA margin of 34.56% is lower than VZ’s 35.79%.
Thus, VZ is more profitable.
POWR Ratings
T has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, VZ has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. T has a C grade in Quality. Its trailing-12-month gross profit margin of 59.11% is 20.3% higher than the 49.13% industry average. However, its trailing-12-month net income margin of negative 9.29% is lower than the 3.21% industry average.
On the other hand, VZ has a B grade in Quality. Its trailing-12-month gross profit margin of 58.69% is 19.5% higher than the 49.13% industry average. Its trailing-12-month net income margin of 15.58% is 385% higher than the 3.21% industry average.
Among the 17 stocks in the Telecom - Domestic industry, T is ranked #8, while VZ is ranked #4.
Beyond what we’ve stated above, we have also rated both stocks for Value, Sentiment, Stability, Growth, and Momentum. Get all T ratings here. Click here to view VZ ratings.
The Winner
The telecom industry is expected to keep seeing solid growth owing to surging demand for high-speed internet connections and rising spending on 5G infrastructures. Industry players such as T and VZ are well-positioned to benefit from these industry tailwinds.
However, VZ seems to be the better buy here, considering its higher margins.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Telecom – Domestic here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
VZ shares were trading at $38.60 per share on Thursday afternoon, up $0.10 (+0.26%). Year-to-date, VZ has gained 5.16%, versus a 21.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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