Verizon vs AT&T: Which Telecom Stock Is Best?


The telecommunications sector is in bad shape this year. However, the sector has been stabilizing recently. In this piece, we compare two telecom stocks that are up more than 10% in the past month. Verizon Communications (NYSE: VZ) and AT&T (NYSE: T) both offer big dividends, but for much of this year investors have penalized one for weak guidance and rewarded the other for solid guidance. So is Verizon or AT&T the better investment? The simple answer would be “yes” because both stocks are good.

Verizon Communications (VZ)

Verizon is the one that has been chastised for much of this year for lackluster subscriber additions and guidance that suggested a continued decline in subscribers. However, with a dividend yield of 6.66% after annual dividend increases over the past 12 years, Verizon should not be penalized just yet. This is a company that will last, so a long-term view seems reasonable amid this year’s sell-off.

It’s true that Verizon is having some issues right now. The company has struggled to add new customers and is seeing significant churn rates due to price hikes, and management has been quite outspoken about the challenges.

In its second-quarter earnings report in July, VZ lowered its full-year outlook for wireless service revenue growth from 9% to 10% in a range of 8.5% to 9.5%. However, the company reiterated that expectation in its third-quarter report in October. While higher prices initially hurt Verizon, wireless service revenues rose 10% in the third quarter, albeit lacking postpaid net additions, to just 8,000.

At a company like Verizon, it’s important to look at the big picture. Multiple surveys have voted Verizon the best mobile network for years. So even if people avoid the company for a while because of its high prices, management will make some very serious mistakes to prevent Verizon from bouncing back. With the current recession fears and continued inflation, consumers are following the clock, making them more vulnerable to price increases than usual.

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However, it seems all Verizon needs is a little longer, and it’s been worth hanging around with the higher dividend yield and waiting for things to return to normal. In addition, Verizon’s trailing P/E of nearly 8.5x appears low relative to history, making current valuations look like a buying opportunity.

What is the price target for the VZ share?

Verizon has a Hold consensus rating based on four Buy, 10 Hold, and one Sell ratings assigned in the past three months. At $45.86, the average price target for Verizon Communications implies upside potential of 17.8%.

AT&T (T)

AT&T offers superior guidance and customer trends and has an attractive dividend yield of 5.9%. Despite these positives, AT&T trades at a slightly lower P/E multiple than Verizon, about 7.9x. Low valuations and positive trends also make an optimistic view seem appropriate for AT&T.

AT&T’s stock is up 11.6% over the past month, and like Verizon, AT&T is undervalued relative to history. However, unlike Verizon, AT&T earns a premium over Verizon for its strong guidance.

The company raised its full-year forecast to a low of $2.46 per share from the low $2.50 it had estimated last quarter. Due to rising costs, rising earnings expectations are also compelling at this time. AT&T also remains “confident” it can generate $14 billion in free cash flow for 2022, meaning it has enough cash to support its dividend and debt payments despite rising interest rates.

What is the price target for T-shares?

AT&T has an average buy consensus rating, based on six buy, seven hold, and zero sell ratings assigned in the past three months. At $20.20, the average price target for AT&T indicates upside potential of 5.81%.

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Conclusion: Long Term Bullish on VZ and T

It’s hard to go wrong in a somewhat recession-proof industry like telecommunications, which has been fragile even in today’s financial markets. As a result, both Verizon and AT&T look attractive, especially when compared to their biggest competitor T-Mobile (Nasdaq: TMUS), which is trading at a hefty P/E ratio of around 124x after turning bullish on the trend of its clients.

However, it’s important to realize that both Verizon and AT&T are long-term positions. It may take some time for the markets to see a lasting correction, but in the meantime, dividends from both companies may ease some of the pain for investors as they wait for a recovery.





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