In the modern interconnected world, telecommunication services play a vital role. They are indispensable for communication, information exchange, entertainment, and facilitating business operations. This widespread reliance on telecommunication services ensures a continual and steady demand for such offerings.
Given the consistent demand for this industry, in this article, we explore the fundamentals of two sound telecom stocks, Verizon Communications Inc. (VZ) and AT&T Inc. (T), which could be sound additions to your watchlist.
The telecom industry seems to be in a favorable spot, propelled mainly by the continuous progress in 5G technology. The market size of 5G connections is projected to be around $106.64 billion in 2023, with an anticipated expansion to $990.33 billion by 2028, reflecting a robust CAGR of 56.2% during the forecast period spanning from 2023 to 2028.
Moreover, global 5G connections are on track to surpass 1.90 billion by the year’s end. This projection charts an exceptional path, with estimates pointing toward an astonishing 6.80 billion global 5G connections by the end of 2027.
This signifies an average annual growth of nearly one billion fresh connections, highlighting the substantial scope and influence of the 5G technology landscape.
On top of it, government investments in the telecom industry play a pivotal role in bolstering the industry's prospects and potential. For instance, the Biden-Harris Administration introduced a $1.50 billion Innovation Fund aimed at enhancing the competitiveness and diversity of the telecommunications supply chain.
Through showcasing the feasibility of innovative open-architecture methodologies for wireless networks, this initial funding stage aims to guarantee that the development of 5G and next-generation wireless technology is spearheaded by the United States and its international allies and partners.
Furthermore, the telecommunication industry is considered defensive in nature. Individuals depend on communication and internet connectivity to stay connected in their personal and professional spheres, regardless of prevailing economic circumstances.
Keeping all the above factors in mind, let us delve deeper into the fundamentals of the featured stocks:
Verizon Communications Inc. (VZ)
VZ provides communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates in two segments: Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
On August 16, VZ revealed its collaboration with the Washington Commanders aimed at enhancing the fan experience at FedExField beginning in 2024. Designated as the "Official 5G Network of the Washington Commanders,” VZ is the first corporate partner to sign on with the Commanders since the team's sale was officially concluded last month.
Commenting on this, Chris Flood, Atlantic North Market President at VZ, said, “As a new corporate partner supporting the Washington Commanders, we look forward to providing technology solutions that will improve the experience for fans on and off the field, and ensure reliable communications for game day operations and personnel."
In the same month, VZ announced its early attainment of the full 5G C-band spectrum won in the March 2021 auction, four months ahead of schedule. This achievement offers Saint Louis residents and visitors access to a broader 160 MHz spectrum, significantly expanding 5G bandwidth for improved service in the region.
Additionally, this development enables VZ to rapidly broaden and improve its 5G Ultra-Wideband network, leading to significantly increased capacity for serving a larger customer base and delivering more advanced services while facilitating faster data speeds.
The stock’s trailing-12-month net income margin of 15.58% is 332.3% higher than the 3.60% industry average. VZ’s trailing-12-month ROCE of 23.22% is 606.3% higher than the industry average of 3.29%. Furthermore, its trailing-12-month ROTA of 5.54% is 258.1% higher than the industry average of 1.55%.
For the fiscal second quarter, which ended on June 30, 2023, VZ’s total operating revenues amounted to $32.59 billion, while its operating income stood at $7.22 billion. During the same period, the company’s net income and EPS came in at $4.77 billion and $1.10, respectively. In addition, its cash and cash equivalents amounted to $4.80 billion, up 84.4% versus $2.61 billion as of December 31, 2022.
Street expects VZ’s revenue and EPS for the third quarter (ending September 2023) to be $33.46 billion and $1.19, respectively. Additionally, the company topped its consensus EPS estimates in each of the trailing four quarters, which is impressive.
VZ’s shares have gained marginally over the past month to close the last trading session at $33.35.
VZ has an overall rating of C, translating to Neutral in our proprietary POWR Ratings system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Stability and Quality. It is ranked #4 out of 18 stocks in Telecom - Domestic industry. To see VZ’s ratings for Growth, Value, Momentum, and Sentiment, click here.
AT&T Inc. (T)
T provides telecommunications and technology services worldwide. The company operates through two segments: Communications and Latin America. Some of its offerings include wireless voice, data communications services, handsets, hands-free devices, etc.
On August 1, T paid its shareholders a quarterly dividend of $0.28 per share on its common shares. The company’s annual dividend of $1.11 translates to a 7.87% yield on the prevailing prices, while its four-year average yield is 7.02%.
On June 7, T and Cisco Systems, Inc. (CSCO) jointly introduced innovative solutions to improve connectivity and revolutionize communication options for hybrid work environments.
The solutions integrate Cisco's Webex Calling and SD-WAN offerings alongside the prowess of T's mobile network. This combined approach empowers businesses of all scales to furnish their workforce with a smooth, secure, and uniform experience, enabling them to excel in any work scenario.
T’s trailing-12-month gross profit margin of 58.89% is 19.3% higher than the 49.37% industry average. The stock’s trailing-12-month EBIT margin of 23.02% is 170.8% higher than the industry average of 8.50%. Also, its trailing-12-month CAPEX/ Sales of 15.44% is 283.9% higher than the industry average of 4.02%.
For the fiscal second quarter, which ended on June 30, 2023, T’s total operating revenues increased marginally year-over-year to $29.92 billion, while its operating income grew 29.3% from the year-ago value to $6.41 billion.
The company’s attributable net income and EPS amounted to $4.49 billion and $0.61, up 7.9% and 3.4% from the prior-year quarter, respectively. Also, its total current assets came in at $36.67 billion, increasing 10.8% compared to $33.11 billion as of December 31, 2022.
Analysts expect T’s revenue for the third quarter (ending September 2023) to increase marginally year-over-year to $30.27 billion. While its EPS for the same quarter is expected to be $0.62. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
The stock has gained marginally over the past month to close the last trading session at $14.11.
T has an overall C grade, which translates to Neutral in our POWR Ratings system. Out of 18 stocks in the same industry, it is ranked #8.
It has a C grade for Growth, Value, Momentum, Stability, Sentiment, and Quality. Get all T ratings here.
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VZ shares were trading at $33.35 per share on Monday morning, down $0.00 (0.00%). Year-to-date, VZ has declined -11.04%, versus a 16.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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