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Consumer demand for mobile devices and wireless services has always been relatively strong. However, intensifying competition among telecom providers has become more pronounced than ever in the last few years.
That said, Wireless National Industry is currently in the top 36% of 251 Zacks Industries, and the long-term expansion and pivotal role played by wireless communications leaves room for multiple players. must.
Let’s take a look at how the two largest wireless service providers enter their third quarter results.
AT&T T
When AT&T (T) reports its third-quarter earnings on Oct. 28, investors are looking at the stock trading 27% off its highs. , long distance, data/broadband, and internet video Managed networking, wholesale and cloud-based services.
The Zacks consensus estimate for AT&T’s third-quarter earnings is $0.61 per share, which would be down 30% from the third quarter of 2021. Sales are also expected to fall 25% to $29.82 billion. Estimates for this period are down from $0.64 at the beginning of the quarter. Year-over-year, AT&T’s revenue is expected to decline -25% in 2022. Earnings are expected to stabilize in fiscal 2023, but still decline -1% to $2.49 per share. Revenue is also expected to decline 25% in FY22 and decline another 3% to $122.38 billion in FY23. Operating costs to expand its 5G infrastructure are now squeezing the company’s bottom line, and delays in paying phone bills are impacting AT&T’s free cash flow and revenue.
AT&T’s stock is down -37% year-to-date, trailing the S&P 500’s -22% and its peers’ -9%. AT&T’s underperformance began before the current market conditions. AT&T has fallen -59% over the past three years, trailing the benchmark’s +25% decline and its peers’ -31% decline.
Image Source: Sachs Investment Research
Investors will expect AT&T to return to its past performance. His 20-year total return performance for AT&T, including favorable dividends, is +134%. This is still below the benchmark, but ahead of its peers +27%.
The company’s attempt to enter the cable TV industry by acquiring DirectTV hurt its stock price. The $49 billion purchase price, combined with high operating costs to enter the industry, weighed on AT&T’s earnings. Now that AT&T has spun off his DirectTV and is back in business as a wireless service provider, things could start to turn around.
AT&T trades at about $15 a share and trades at a futures earnings multiple of 6.1x, well below the industry average of 23.4x. This is also well below the decade high of 15.3X and median of 12.1X.
Image Source: Sachs Investment Research
AT&T currently holds #3 (hold) on Zacks Rank and is beginning to deliver value to long-term investors at its current level. Investors want to see if the company can outperform third-quarter earnings and raise guidance for the fourth quarter and his fiscal year 2023.
This is sure to get more investors interested in the stock again, and at $1.11 per share, the annual dividend yield is higher than the average 7.12%. Sachs’ average price target of $23.14 also suggests a 48% increase from current levels.
Verizon VZ
Verizon (VZ) is up 33% from its highs and reports third-quarter earnings on Oct. 21. Verizon surpassed AT&T to become North America’s largest wireless service provider. Verizon serves millions of customers nationwide through local phone, long distance, wireless and data services.
The Zacks consensus estimate for Verizon’s third-quarter earnings is $1.28 per share, down -9% from Q3 2021. .
Year-on-year, VZ revenue is expected to decline -4% in 2022. However, in 2023, he expects earnings to grow 2% to $5.28 per share. Revenue in FY22 is expected to grow 2%, and another 1% in FY23 to $138.45 billion for top-line growth.
Given the tougher operating environment combined with the fact that Verizon is already the largest wireless service provider in the country, it will be important to see if Verizon continues to grow further. VZ is down -29% year-to-date, close to the S&P 500’s decline and trailing its peers’ -9%. VZ has also fallen -40% over the past three years, trailing the benchmark +25% and peers -31%.
Image Source: Sachs Investment Research
Investors want Verizon to recapture its past strong performance. Over the last 20 years, VZ’s total return performance including dividends has been a solid +173%. This is below the benchmark, but above the peers +27%.
Currently trading at around $37 per share, VZ’s P/E is 7.1x. This is well below the industry average of 23.4x. Even better, VZ is trading at a discount to its 10-year high of 19.2X and median of 12.3X.
Image Source: Sachs Investment Research
Verizon currently holds Zacks rank #3 (hold). Management’s ability to show that the company can turn a profit in the face of rising inflation will be key to a recovery in stock prices. For now, patient investors have been rewarded with Verizon’s impressive 7.04% dividend yield ($2.61 per share). Sachs’ average price target is also up 46% from its current level.
Conclusion
A strong third quarter earnings report and strong guidance could give the country’s two largest wireless service providers a much-needed boost. Both AT&T and Verizon are trading at discounts in the past and offer high dividend yields to reward patient investors. In addition to portfolio income, holding stocks can be even more profitable as valuations are low and they appear poised for recovery.
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