The telecom sector has evolved significantly, driven by the growing demand for 5G technology and the need for high-speed, low-latency networks. The ongoing expansion of 5G, alongside the anticipation of 6G deployment, represents a strategic shift that is fueling substantial growth within the industry.
Amid this backdrop, investors could consider buying fundamentally sound telecom stocks T-Mobile US, Inc. (TMUS), Verizon Communications Inc. (VZ), and AT&T Inc. (T), which are leading the 5G technology expansion and are well-positioned to benefit from the increasing demand for advanced connectivity.
Telecom companies offering 5G networks are enabling the development of advanced technologies like augmented reality (AR), virtual reality (VR), and edge computing. These advancements boost efficiency and productivity across other industries as they adopt 5G networks. According to a PwC report, the US economy will be expected to add $15 billion by using 5G applications in industrial manufacturing by 2030.
The future outlook of the telecom is bright and promising, especially as 5G networks become more widespread. The global 5G infrastructure market is projected to reach $590.18 billion by 2032, exhibiting a CAGR of 42.7%. With that, global connections are forecasted to reach 7.9 billion by 2028, driven by innovation and collaboration.
Given these favorable market trends, let’s look at the fundamentals of the top three Telecom – Domestic stocks, beginning with the third choice.
Stock #3: Verizon Communications Inc. (VZ)
VZ offers communications, information, and entertainment products and services to consumers, businesses, and governmental agencies. It operates through two segments, Verizon Consumer Group and Verizon Business Group, providing wireless and wireline communications services and products in the United States.
On September 5, VZ announced that it would acquire Frontier Communications Parent, Inc. for a $20 billion cash deal. This acquisition will considerably expand VZ’s fiber footprint and intelligent edge network for digital innovations like AI and IoT across the nation to current as well as new customers. Frontier’s 2.2 million fiber subscribers will join VZ’s connections, expanding its network reach to 25 million premises across 31 states and Washington, D.C.
On September 4, buoyed by strong financial performance, the company increased its quarterly dividend by 1.25 cents to $0.6775 per share, payable to its shareholders on November 1, 2024.
VZ has raised its annual dividend for 18 consecutive years. It pays an annual dividend of $2.71, which translates to a yield of 6.04% at the current share price. Its four-year average dividend yield is 5.83%. Moreover, the company’s dividend payouts have increased at an impressive CAGR of 2% over the past five years.
In the fiscal second quarter that ended on June 30, 2024, VZ’s total operating revenues increased marginally year-over-year, amounting to $32.80 billion. Its operating income rose 8.3% from the year-ago value to $7.82 billion. The company’s consolidated adjusted EBITDA came in at $12.30 billion, up 2.8% year-over-year, and its EPS stood at $1.09. In addition, its total broadband subscribers stood at 11.5 million, representing an increase of nearly 69% year-over-year.
According to VZ’s guidance and outlook for its fiscal year 2024, it is projecting adjusted EBITDA to grow between 1% to 3%. Additionally, its adjusted EPS guidance ranges from $4.50 to $4.70. The company also expects total wireless services revenue growth to range between 2% and 3.5%.
Street expects VZ’s revenue for the fiscal fourth quarter (ending December 2024) to increase marginally year-over-year to $35.53 billion. Its EPS for the same period is expected to register a 2.7% growth from the prior year, settling at $1.11. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters, which is promising.
The stock has gained 38.6% over the past year and 20.3% over the past nine months to close the last trading session at $44.89.
VZ’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VZ has a B grade for Stability. It is ranked #7 out of 18 stocks in the Telecom - Domestic industry. Click here to see the additional ratings for VZ (Growth, Value, Momentum, Sentiment, and Quality).
Stock #2: AT&T Inc. (T)
T is a leading global telecommunication, media, and technology service provider that operates through two segments: Communications and Latin America. It provides wireless and wireline telecom services to consumers and businesses worldwide.
On September 9, T expanded its high-speed fiber internet to new geographies, reaching more people. This expansion will be continued through joint ventures and other commercial open-access agreements aiming to expand Gigapower’s fiber footprint in new locations.
On September 27, the company declared a quarterly dividend of $0.2775 per share, payable to its shareholders on November 1. T pays an annual dividend of $1.11 per share, which translates to a yield of 5.07% on the prevailing share price. Also, its four-year average dividend yield is 6.38%.
T’s operating revenues from service for the second quarter (ended June 30, 2024) increased marginally year-over-year to $25.01 billion. Its attributable net income came in at $3.55 billion, and its earnings per share stood at $0.49. The company’s free cash flow grew 9.5% from the year-ago value to $4.60 billion. Also, it reported an adjusted EBITDA of $11.34 billion, indicating a 2.6% growth from the prior year’s quarter.
Looking ahead, T anticipates full-year adjusted EBITDA for the fiscal year 2024 to be in the range of 3%, and capital investment and free cash flow are anticipated to be in the range of $21-$22 billion and $17-$18 billion, respectively. The company also projects adjusted EPS to fall between $2.15 and $2.25.
Analysts expect T’s revenue and EPS for the current year (ending December 2024) to be $122.67 billion and $2.19, respectively. For the fiscal year 2025, both its revenue and EPS are expected to grow by 1.6% and 3.5% from the prior year to $124.68 billion and $2.26, respectively.
T shares have surged 47.3% over the past year and 32.1% over the past nine months to close the last trading session at $21.90.
T’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Quality. Within the same Telecom - Domestic industry, it is ranked #3. Click here to see T’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #1: T-Mobile US, Inc. (TMUS)
TMUS is a provider of mobile communications services, including voice, messaging, and data, under its flagship brands, T-Mobile and Metro by T-Mobile. It offers mobile communications services primarily using its 4G Long Term Evolution (LTE) network and its 5G technology network.
On September 18, TMUS and Open AI entered a multi-year agreement to customize the first intent-driven AI-decisioning platform, IntentCX. This platform will use real-time data to understand customers’ needs and intent and proactively take action and resolve issues.
On the same day, demonstrating its commitment to returning value to shareholders, the company declared a quarterly dividend of $0.88 per share, up 35% from the previous quarter, payable to its shareholders on December 12, 2024. TMUS pays an annual dividend of $3.52, which translates to a yield of 1.72% at the current share price. Its four-year average dividend yield is 0.17%.
For the second quarter of 2024, which ended on June 30, TMUS’ total revenues increased 3% year-over-year to $19.77 billion, while its postpaid service revenues grew 6.9% from the same period last year to $12.90 billion.
The company’s adjusted EBITDA for the quarter amounted to $8.05 billion, representing an increase of 8.8% year-over-year. Its net income stood at $2.92 billion, up 31.7% year-over-year, while its earnings per share rose 33.9% from the prior year’s quarter to $2.49. Also, TMUS’ adjusted free cash flow grew 54.3% from the year-ago value to $4.44 billion.
Building on this quarter’s momentum, the company updated its guidance for 2024. TMUS anticipates that the full-year core adjusted EBITDA will range between $31.50 billion and $31.80 billion. It also forecasts adjusted free cash flow in the range of $16.60 billion to $17 billion and postpaid net customer additions to be between 5.4 million and 5.7 million.
The consensus revenue estimate of $20 billion for the fiscal third quarter (ending September 2024) represents a 3.9% increase year-over-year. The consensus EPS estimate of $2.45 for the current quarter indicates a 22.8% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has surged 46.9%, closing the last trading session at $205.18.
It’s no surprise that TMUS has an overall rating of B, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Stability, Sentiment, and Quality. Out of 18 stocks in the same industry, TMUS is ranked #2.
Beyond what is stated above, we’ve also rated TMUS for Value and Momentum. Get all TMUS ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TMUS shares were unchanged in premarket trading Monday. Year-to-date, TMUS has gained 29.39%, versus a 21.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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