VZ stock, T stock and TMUS stock outperform S&P 500

The Big Three Wireless Service Providers — Verizon Communications (VZ), AT&T (T) and T-Mobile United States (TMUS) – looks better to investors these days than a lot of growth stocks. And with a possible US recession looming, VZ, T and TMUS stocks could continue to outperform the S&P 500. Or so some Wall Street analysts believe.


“Disappointing overall corporate earnings growth and growing recession fears could help support a continued spin in the telecoms sector as a safe haven,” Morgan Stanley analyst Simon Flannery said in a report.

T-Mobile stock is up 16% in 2022 and AT&T stock is up 11%. Verizon stock fell 2.5%. Meanwhile, the S&P 500 fell more than 20%.

VZ and T shares offer significant dividends. Analysts expect a buyback of TMUS shares to begin in late 2022 or 2023.

VZ stocks and telecom stocks benefit from 5G

While rising interest rates are a concern for technology stocks as they reduce free cash flow, telecommunications stocks can rely on “primarily contractual revenue streams and more resilient end-user demand.” recession,” UBS analyst John Hodulik said in a report.

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But revenue growth is no reason to buy telecom stocks.

Analysts polled by FactSet estimate that T-Mobile’s revenue in 2022 will grow more than 1% while Verizon’s sales will grow 2%. Following the WarnerMedia spin-off, AT&T’s revenue will drop in 2022. In fiscal 2023, analysts estimate that its revenue will drop 5%.

Still, in the long run, all three wireless service providers could be boosted by 5G networks. Using 5G promotions, telecom companies aim to upgrade consumers to unlimited data plans. Additionally, new revenue streams could emerge from private 5G services to business customers.

Meanwhile, Verizon and T-Mobile are extending 5G broadband services to homes. Analysts say the addition of residential 5G broadband customers could be a bright spot in second-quarter earnings reports.

VZ Stock News: Rise in wireless tariffs

Additionally, AT&T and Verizon raised some fees in the June quarter, citing inflationary pressures. Price increases could boost revenue in the near term, analysts said.

“Despite the challenging dynamics in the wireless industry, wireless stocks outperformed the broader market,” Cowen analyst Gregory Williams said in a report. “All three carriers have increased prices/fees over the past month as wireless service is a utility-type necessity, with higher criticality than ever, making wireless a less bad industry as investors consider the ‘consumer impairment’.

AT&T will release its second quarter results on July 21. Verizon will follow on July 22.

At Wells Fargo, analyst Eric Luebchow says current market conditions favor telecommunications stocks.

“We don’t think the sky is falling on mobile operators – there are definite challenges ahead, but the Big 3 should be much more sustainable and resilient in these economic times than many other more cyclical names,” said he said in a report. .

Dish, cable competition intensifies

However, the big three wireless service providers face new threats. Satellite broadcaster Dish Network (DISH) is building a 5G wireless network from the ground up.

Additionally, cable television companies such as Comcast (CMCSA) continue to bundle wireless services with their broadband products.

AT&T and Verizon offer large dividends because of the free cash flow they generate. AT&T, however, cut its dividend by 46% to $1.11 per share due to the WarnerMedia spinoff.

At Raymond James, analyst Frank Louthan says AT&T stocks still offer investors a safe haven.

“We believe simple recurring revenue names with strong dividends like AT&T perform better in a tough band, and with macro issues affecting the market, we believe AT&T can outperform,” he said in a statement. report.

AT&T ranks first out of eight stocks in IBD’s Telecom Services-Integrated industry group. The T stock has an IBD composite rating of 79 out of 99. The VZ stock is second with a CR of 73.

Cell tower operator insights

While wireless service providers have outperformed the S&P 500, cell tower operators are not in the same boat. Shares of American tower (AMT) fell by 11% in 2022 while Crown Castle (CCI) is down 17%. SBA Communications (SBAC) fell 16%.

Wireless telephone companies rent tower space to house radio antennas. Telephone companies normally sign 15 to 20 year leases with tower companies. Most towers house radio antennas from multiple operators.

Some analysts expect a benefit from 5G network builds for tower companies. 5G networks connect to fiber optic communication infrastructure in urban areas.

“Our view is that 2023 should still be a stronger rental year than 2022, although 2023 could represent the peak gross rental year,” KeyBanc Capital Markets analyst Brandon Nispel said in a report. “Operators are competing on network quality, which suggests rental should stay higher for longer as operators compete throughout the 5G cycle.”

If you are new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns is one of the keys to investing guidelines.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.


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