Heading into third-quarter earnings reports, it's been a good year for telecom stocks AT&T, T-Mobile US and Verizon Communications. When earnings come in for Verizon stock on Tuesday morning, many Apple investors will focus on management commentary on wireless subscriber upgrades to iPhone 16 models.
The big question is whether Apple Intelligence features in iPhone 16 models will spur a big upgrade cycle. Apple is adding artificial intelligence features to its mobile operating system. Apple has licensed technology from generative AI leader OpenAI.
Third quarter earnings for Verizon stock are due Oct. 22. AT&T and T-Mobile report on Oct. 23.
Apple Investors Tune Into Telecom Stocks
"Apple investors will be watching as closely as telecom investors," said Craig Moffett, analyst at MoffettNathanson. "Handset upgrade rates are going to be critical to both sets of investors. For Apple, a strong handset upgrade cycles would be a good thing. But for the wireless operators, who subsidize handsets to the tune of $600 per phone, they're terrible. For the carriers, low upgrade rates mean low churn, better margins, and much better free cash flow."
Meanwhile, T-Mobile stock has gained 39% in 2024. AT&T stock has advanced 30%. Verizon stock has climbed 16%. Apple stock is up 22%. Earnings for Apple stock are due on Oct. 31.
"We are expecting another constructive quarter for the industry, supported by a resilient macro (economic) backdrop and healthy volume trends," said Morgan Stanley analyst Simon Flannery in a report.
TD Cowen analyst Gregory Williams in a report said falling interest rates have been a plus for high dividend paying stocks such as AT&T and Verizon.
"The wireless industry still remains in good condition with historically low churn, a healthy consumer with price hikes, muted 5G spend for capital spending relief and an abating iPhone upgrade cycle risk," Williams said. "Wireless should still be seen as defensive stocks, highlighted by outsized shareholder returns, should we see a risk-off tape and/or a rotation from frothy AI stocks."
AT&T Stock: Q3 Earnings Seen Falling 11%
For AT&T, analysts estimate Q3 adjusted profit of 51 cents, down 11% from a year earlier. AT&T revenue is expected to be flat at $30.4 billion.
Verizon earnings are expected to fall 3% to $1.18 per share, with revenue also flat at $33.5 billion. T-Mobile's EPS is expected to pop 33% to $2.43 per share, with revenue rising 4% to $20 billion.
Analysts expect T-Mobile to again lead in wireless "postpaid phone" subscriber growth. Those are the highest spending customers.
Analysts expect T-Mobile to add 742,000 postpaid phone subscribers, with AT&T adding 435,000 and Verizon adding 218,000.
Meanwhile, telecom stocks AT&T and Verizon underperformed in 2023 and 2022 but rebounded this year. In 2023, Verizon stock fell 4% in 2023 while AT&T stock tumbled 9%. Also, T-Mobile stock climbed 14%.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
