The telecom industry is growing rapidly, owing to the rise in digital adoption and data consumption driven by smartphones and mobile internet. Technological advancements such as 5G networks and the adoption of wireless networks are also driving industry growth.
With digitalization on the rise, demand for services such as OTT, messaging, and e-commerce has boosted the industry’s growth. Moreover, enterprises have adopted private wireless networks in various sectors like healthcare, manufacturing, and retail, focusing on premium connectivity solutions for B2B and B2C customers.
As per the GSM Association, 5G networks are projected to have over 1.10 billion subscribers globally by 2025.
Despite the growing adoption of 5G technology, major telecom companies have already started incorporating next-generation 6G through collaborations and partnerships. Driven by consistent innovation and significant R&D investments, the telecom industry is flourishing. The U.S. telecom market is estimated to reach $530.61 billion, growing at a 3.7% CAGR by 2029.
Given this backdrop, let’s delve into a comparative analysis of two Telecom - Domestic stocks, T-Mobile US, Inc. (TMUS) and Verizon Communications Inc. (VZ), to understand why VZ will likely drive investor profits in May.
The Case for T-Mobile US, Inc. Stock
T-Mobile US, Inc. (TMUS) provides mobile communications services in the U.S., Puerto Rico, and the United States Virgin Islands.
TMUS’ stock has declined 1.4% intraday but gained 20.6% over the past nine months to close the last trading session at $162.37.
On May 1, TMUS announced the transaction's closing to acquire Ka’ena Corporation, a provider of wholesale wireless solutions that includes popular prepaid wireless brands Mint Mobile, Ultra Mobile, and Plum. On April 25, The U.S. Federal Communications Commission approved TMUS’ previously announced acquisition of Ka’ena Corporation.
The acquisition will allow TMUS to tap into Mint and Ultra's unique capabilities, particularly Mint’s approach to D2C marketing, which has helped them succeed in wireless.
In terms of forward EV/Sales, TMUS is trading at 3.77x, 105.2% higher than the industry average of 1.84x. The stock’s forward EV/EBIT of 17.36x is 13.8% higher than the industry average of 15.25x.
TMUS’ trailing-12-month asset turnover ratio of 0.38x is 21.8% lower than the industry average of 0.48x. However, the stock’s trailing-12-month net income margin and levered FCF margin of 11.14% and 12.08% are 315.7% and 48% higher than the industry averages of 2.68% and 8.16%, respectively.
TMUS’ four-year average dividend yield is 0.06%. It has a forward dividend yield of 1.60%.
In the fiscal first quarter that ended December 31, 2023, TMUS' total revenues declined marginally from the prior-year quarter to $19.59 billion, while its prepaid average revenue per user stood at $37.18, down 2.1% from the year-ago quarter. For the same quarter, its net income and EPS increased 22.4% and 26.6% year-over-year to $2.37 billion and $2, respectively.
Analysts expect TMUS’ revenue and EPS for the quarter ending June 30, 2024, to increase 2.1% and 10.6% year-over-year to $19.60 billion and $2.26, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock is trading above its 200-day moving average of $151.94. However, it is trading below its 50-day moving average of 162.67.
TMUS’ mixed fundamentals are reflected in its POWR Ratings. It has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a C grade for Momentum, Sentiment, and Quality. Within the Telecom - Domestic industry, TMUS is ranked #6 out of 16 stocks. To see the additional POWR Ratings of TMUS for Growth, Value, and Stability, click here.
The Case for Verizon Communications Inc. Stock
Verizon Communications Inc. (VZ) provides communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates in two segments: Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
The stock has gained 20.6% over the past nine months to close the last trading session at $39.33. Over the past six months, it has gained 10.4%.
In terms of forward EV/EBIT, VZ is trading at 11.08x, 27.4% lower than the industry average of 15.25x. The stock’s forward Price/Book of 1.66x is 19.7% lower than the industry average of 2.06x. On the other hand, its forward EV/Sales of 2.54x is 3.4% higher than the industry average of 1.84x.
VZ’s trailing-12-month CAPEX / Sales of 12.82% is 252.7% higher than the industry average of 3.63%. Its trailing-12-month EBIT margin and EBITDA margin of 22.60% and 35.83% are 169.8% and 93.2% higher than the industry averages of 8.38% and 18.55%, respectively. On the other hand, its 0.35x trailing-12-month asset turnover ratio is 26.6% lower than the industry average of 0.48x.
VZ has paid dividends for 19 consecutive years. Its dividend payouts have grown at a CAGR of 2% over the past three years. While VZ’s four-year average dividend yield is 5.62%, its current forward dividend yield is 6.76%.
VZ’s total revenues for the fiscal first quarter that ended March 31, 2024, increased marginally year-over-year to $32.98 billion. For the same quarter, its net income attributable to VZ and earnings per common share stood at $4.60 billion and $1.09, respectively.
Street expects VZ’s EPS for the quarter ending December 31, 2024, to increase 1.7% year-over-year to $1.10. Its revenue for the quarter ending June 30, 2024, is expected to grow 1.2% year-over-year to $33 billion. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock is trading below its 50-day moving average of $40.27 but above its 200-day moving average of $37.07.
VZ’s robust prospects are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system.
VZ has a B grade for Stability. It is ranked #3 within the same industry. Click here to see VZ’s Growth, Value, Momentum, Sentiment, and Quality ratings.
VZ vs. TMUS: Which Telecom Stock Will Drive May Profits?
The telecom sector is expected to continue benefiting from a favorable regulatory environment, improved accessibility and affordability, greater wireless network integration, rising digitalization initiatives, demand for high-speed internet connectivity, and seamless communication. Both VZ and TMUS stand to capitalize on these favorable industry trends.
However, TMUS trades at an expensive valuation. Thus, considering VZ's solid financials, regular dividend payouts, and greater stability, it could be a better investment choice than TMUS.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Telecom - Domestic industry here.
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TMUS shares were trading at $162.03 per share on Tuesday afternoon, down $0.34 (-0.21%). Year-to-date, TMUS has gained 1.46%, versus a 9.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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