Verizon vs. AT&T: Which Is Better?

by Trefis Team
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Verizon stock (NYSE: VZ) is up almost 22% in a little over the last three years, when the stock price increased from $46 at the end of 2016 to $56 as on 15th June 2020. That’s good for Verizon. But wait a minute, AT&T stock (NYSE: T) has, in fact, dropped 30% during the same period. Hard to believe, but AT&T’s stock has seen a higher decline than Verizon’s stock has seen growth. This, despite the fact that AT&T’s revenue growth for the 2016-2019 period stood at 10.6%, compared to 4.7% for Verizon. Does that make sense? We believe it does and our dashboard Verizon vs. AT&T: Does The Stock Price Movement Make Sense? has the underlying numbers.

Sure, AT&T’s revenues are higher and have seen better growth, but the one key element is the net income margin, which has consistently been higher in the case of Verizon over the last 4 years. For 2019, Verizon’s margin of 15% was almost double that of AT&T’s 7.7%. However, AT&T’s current P/E multiple is higher at 16x vs. Verizon’s 12x based on its current market price and FY’19 EPS . So, what along with profit is driving this divergence in price? It’s their focus on the future.

How Do Core Businesses Of Verizon And AT&T Compare?

Let’s have a closer look at the core business prospects. The primary war between telecom players is to grow their post-paid subscribers as they provide higher average revenue per user (ARPU) and lower churn rate. Though, as per the latest results announcement, Verizon reported 68,000 net losses of retail post-paid phone connection during Q1 2020 as against 163,000 net additions for AT&T, what differentiates the companies is their focus on the future. Verizon is completely focused on expanding 5G technology which is expected to be the next big thing in the telecom space. However, AT&T invested outside of 5G, acquiring DirecTV and Time Warner in recent years in the hopes of gaining market share in the content business, but the TV/satellite services were disrupted by sharp growth in streaming services. AT&T’s latest streaming offering – HBO Max – has also not received the kind of response that Disney+ received just a few months back. Similarly, Verizon had also tried to venture out of the box in the past by acquiring Yahoo! and AOL, but has since then concentrated completely on its telecom business, with the current focus almost entirely being the expansion of 5G technology.

While we believe that AT&T will also benefit from the 5G revolution as it will be a part of it, but that Verizon will benefit much more due to its focused strategy. We expect AT&T’s revenues to fall by about 4% in 2020, slightly more than the 3% drop projected for Verizon’s revenues. Additionally, AT&T is a more leveraged company, with its total debt of $164 billion at the end of Q1 2020 compared to Verizon’s debt of $118 billion. AT&T’s leverage ratio is also higher than Verizon’s (3x vs. 2x). Trefis has a price estimate of $62 for Verizon’s stock and $34 for AT&T’s stock, both slightly higher than their respective current market prices.

However, in this telecom war, why is Verizon falling behind T-Mobile?

 

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