It's a big year for the telecommunications sector, even as the group plays bridesmaid to everyone's favorite artificial intelligence (AI) stocks. But we're witnessing a seismic shift in the telecom industry, with some jaw-dropping numbers to back it up. According to recent data from the GSMA, global mobile operators are set to invest over $1.5 trillion in their networks through the end of this decade. That's trillion with a 'T'! A big chunk of that cash is earmarked for 5G, which tells you just how serious these companies are about building out their networks for next-gen compatibility.
In another big development for the domestic telecom sector, Goldman Sachs (GS) just started coverage on the group with a bullish rating. Analyst James Schneider, Ph.D., noted that the U.S. telecom industry is entering a period where both competition and capital intensity are moderating simultaneously for the first time in a decade. In Goldman's view, this favorable backdrop should drive healthier growth and margin dynamics, with the potential for significant capital returns and stock re-rating across the sector.
As part of that broader sector opinion, Schneider also initiated coverage on two legacy players, AT&T (T) and Verizon (VZ), assigning both stocks a "Buy" rating. This is a pretty high-profile nod for the pair, considering the influence Goldman Sachs has in the market.
What's even more appealing is that both AT&T and Verizon, true to their telecom roots, currently offer attractive forward dividend yields of around 6%. This makes them quite compelling for investors who are looking for income-generating stocks.
#1. AT&T: Strong Dividend Yield and Strategic Investments
AT&T Inc. (T) is a top-tier multinational telecommunications company based in Dallas, Texas. As the third-largest telecom company globally by revenue and the second-largest wireless carrier in the U.S., AT&T offers a variety of services, including wireless communications, broadband, and digital entertainment.
Known for its healthy dividends, AT&T currently pays a quarterly dividend of $0.2775 per share, translating to an annual yield of about 5.90%. This makes it an attractive option for income-focused investors.
T stock is up 11.3% on a YTD basis, and set a new 52-week high of $19.32 as recently as Monday.
With a market cap of around $134 billion, AT&T has a strong market presence - and the forward price/earnings ratio of 8.53 looks pretty reasonable, too.
A key development for AT&T is its $8 billion investment in FirstNet, a dedicated network for public safety communications. This includes $6.3 billion for full 5G capabilities, expanded mission-critical services, and enhanced coverage. This strategic move not only bolsters AT&T's position in the public safety sector but also leverages FirstNet's 20 MHz of 700 MHz low-band spectrum, improving its overall network capabilities.
In its first-quarter 2024 earnings report, AT&T posted EPS of $0.55, beating the consensus estimate of $0.53. The company reported revenues of $30.03 billion, slightly below the expected $30.62 billion, but down only 0.4% year-over-year.
Looking ahead, AT&T's next earnings release is scheduled for July 24, with analysts projecting EPS of $0.58 and revenue estimates around $29.99 billion. For the full fiscal year 2024, EPS estimates range from $2.28 to $2.54, averaging $2.33.
Analyst sentiment towards AT&T is generally positive, with a consensus rating of "Moderate Buy." Out of 22 analysts, 12 recommend a “Strong Buy,” one suggests a “Moderate Buy,” and nine suggest a “Hold.” The mean price target of $20.89 represents expected upside of 11.8% from Wednesday's close.
#2: Verizon Communications: Robust Performance and Strategic Expansions
Verizon Communications Inc. (VZ) is a powerhouse in the telecom world, known for its extensive wireless services, internet, and digital media offerings. It's a go-to for reliable connectivity for millions.
In terms of passive income, Verizon pays a quarterly dividend of $0.665 per share, adding up to an annualized payout of $2.66 per share. With a dividend yield of about 6.45%, it’s a favorite among income-focused investors.
Verizon stock has had a solid run in 2024, up just over 9% since the start of the year.
With a market cap of $173 billion, Verizon has an even bigger footprint than AT&T. At a forward P/E ratio of around 8.99, VZ is a relatively good deal at current levels, and could be undervalued by about 29%.
On the strategic front, Verizon has been making great moves. On June 28, the company announced that Caroline A. Litchfield, CFO of Merck & Co. (MRK), joined its board, bringing in valuable financial expertise. Her extensive experience in corporate finance and strategic planning is expected to provide valuable insights as Verizon navigates major transitional investments in its infrastructure.
And in a significant win, the Department of the Navy (DON) selected Verizon Public Sector to provide wireless devices and services through the Wireless and Telecommunications Services contract vehicle, known as Spiral 4. Announced on June 26, this contract is valued at up to $2.67 billion over 10 years. The contract will see Verizon delivering voice, data, IoT, and mobility management services to military personnel and federal civilian agencies.
In its Q1 2024 earnings report, the company posted EPS of $1.15, beating the consensus estimate of $1.12. Revenue for the quarter was $32.98 billion, just shy of the expected $33.33 billion.
Looking ahead, Verizon's next earnings release is set for July 22. Analysts project Q2 EPS to be $1.15, with revenue estimates around $33.02 billion. For the full fiscal year 2024, EPS estimates range from $4.64 to $4.85, averaging at $4.73, with revenue projected to be about $135.2 billion.
Analyst sentiment towards Verizon is pretty upbeat, with a “Moderate Buy” consensus among 22 in coverage. With the average target price of $44.92 suggesting a potential upside of 9.2%, 7 rate it a “Strong Buy,” 3 say it's a “Moderate Buy,” and 12 say “Hold.”
Conclusion
To wrap it up, AT&T and Verizon have caught Goldman Sachs' eye with their solid dividend yields and promising growth potential. Both stocks are riding high with new "Buy" ratings, thanks to their strategic moves and strong market performance. With positive earnings reports and upbeat analyst sentiment, these telecom giants are looking like great picks for anyone seeking reliable dividends and potential stock appreciation.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
