Rising spending on the deployment of 5G infrastructures due to the shift in customer inclination toward next-generation technologies and smartphone devices is driving the telecom industry.
However, given the challenges in the industry, I think investors could wait for a better entry point in telecom stocks Verizon Communications Inc. (VZ) and AT&T Inc. (T) and sell Anterix Inc. (ATEX).
The global growth in 5G connectivity is driven by the increasing demand for high-speed, low-latency internet access. The rise of Industrial IoT (IIoT) devices is expected to drive demand for advanced data connectivity, particularly in industrial applications, boosting the 5G industry.
The global 5G infrastructure market is anticipated to reach $95.88 billion by 2030, growing at a CAGR of 28.4%.
In addition, the telecommunications industry is rapidly adopting AI across various aspects of its business to enhance customer experience and network reliability. AI also plays a crucial role in network management, automating tasks like traffic routing and self-optimizing network structuring based on existing conditions.
The global artificial intelligence in the telecommunication industry is expected to expand at a CAGR of 38.4% from 2020 to 2027.
However, the telecom industry is still grappling with the demand for ever-increasing communication speed, security concerns, and the need for further interconnectedness. Moreover, the telecom industry also faces challenges in disclosing climate change efforts and environmental, social, and governance (ESG) metrics.
Stocks to Hold:
Verizon Communications Inc. (VZ)
VZ offers communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. It operates through two segments: Consumer and Business.
VZ’s forward EV/Sales multiple of 2.37 is 28.8% higher than the industry average of 1.84. Yet its forward non-GAAP P/E multiple of 7.01 is 50.3% lower than the industry average of 14.09.
On September 18, VZ announced that it was named the official 5G partner for both the Houston Dynamo Football Club (HDFC) and the Houston Dash. They will collaborate to enhance the fan experience at Shell Energy Stadium, with VZ also serving as the presenting sponsor for Fan Appreciation Week, starting September 30.
This partnership signifies the organization's growing momentum, and exciting events, including a concert on October 8, are planned.
On September 7, VZ declared a quarterly dividend of 66.50 cents per outstanding share, an increase of 1.25 cents per share from the previous quarter. The quarterly dividend is payable on November 1, 2023. This is the 17th consecutive year Verizon’s Board has approved a quarterly dividend increase.
The company pays an annual dividend of $2.66, that translates to a dividend yield of 8.06% on the prevailing price level, higher than its four-year average of 5.20%.
VZ’s service revenues and other increased marginally year-over-year to $27.32 billion for the second quarter that ended June 30, 2023. Also, its total operating expenses came in at $25.38 billion, down 3.3% year-over-year. However, net income declined 10.3% year-over-year to $ 4.77 billion.
Analysts expect VZ’s EPS to decline 10.1% year-over-year to $1.19 in the fiscal third quarter ending September 2023. Its revenue is expected to amount to $33.57 billion for the same quarter. It has surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
The stock fell marginally intraday to close the last trading session at $32.99.
VZ’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, equating to a Neutral 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 and a C for Value, Momentum, Sentiment, and Quality. It is ranked #5 in the 18-stock Telecom - Domestic industry.
Beyond what is stated above, we’ve also rated VZ for Growth. Get all VZ ratings here.
AT&T Inc. (T)
T provides telecommunications and technology services worldwide. The company operates through two segments, Communications; and Latin America.
T’s forward EV/Sales multiple of 2.32 is 26.1% higher than the industry average of 1.84. But its forward non-GAAP P/E multiple of 6.18 is 56.1% lower than the industry average of 14.09.
On August 2, T and DXC Technology (DXC), a leading Fortune 500 global technology services provider, announced a new multi-year agreement to provide end-to-end support for a portion of its IT infrastructure operations.
On August 1, T paid a quarterly dividend of $0.28. T pays $1.11 annually as dividends. This translates to a yield of 7.39% at the current market price, higher than the four-year average dividend yield of 5.20%.
T’s revenues increased marginally year-over-year to $29.90 billion in the fiscal second quarter that ended June 30, 2023. Its adjusted operating income increased 8.5% year-over-year to $6.40 billion. However, its adjusted EPS decreased 3.1% year-over-year to $0.63.
Street expects T’s revenue to increase marginally year-over-year to $30.28 billion for the fiscal third quarter ending September 2023. However, its EPS is likely to decrease 8.7% year-over-year to $0.62 in the same quarter. The company has failed to surpass revenue estimates in three of the trailing four quarters, which is disappointing.
The stock has gained 6.5% over the past month to close the last trading session at $15.02. However, it declined marginally intraday.
It is no surprise that the stock has an overall C rating, equating to a Neutral in our proprietary rating system.
It also has a C grade for Value, Stability, Quality, Momentum, Sentiment, and Growth. It is ranked #8 in the same industry.
Click here to see the additional POWR Ratings for T.
Stock to Sell:
Anterix Inc. (ATEX)
ATEX is a wireless communication company that focuses on commercializing its spectrum assets in order to enable targeted utility and critical infrastructure customers to develop private broadband networks, technologies, and solutions.
ATEX’s forward EV/Sales multiple of 147.06 is significantly higher than the 1.84 industry average. In terms of its forward Price/Sales, ATEX is trading at 153.31x, which is considerably higher than the industry average of 1.10x.
On September 22, ATEX authorized a new share repurchase program under which the company may repurchase up to $250 million of its outstanding shares of common stock over three years.
ATEX’s operating expenses increased 15.9% year-over-year to $42.78 million in the fiscal 2024 first quarter that ended June 30, 2023. Its loss from operations amounted to $2.84 million. The company’s net loss and loss per share came in at $2.12 million and $0.11.
ATEX’s EPS is expected to decline 10.9% year-over-year to negative $0.62 in the current fiscal second quarter ending September 2023. The company has failed to exceed its EPS estimates in each of the four quarters.
Over the past year, the stock has lost 9.9% to close the last trading session at $31.94.
ATEX’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
In addition, the stock has an F grade for Value and Quality and a D for Stability. It is ranked #17 in the same industry.
To access ATEX’s Growth, Sentiment, and Momentum grades, click here.
What To Do Next?
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VZ shares were trading at $32.71 per share on Wednesday morning, down $0.28 (-0.85%). Year-to-date, VZ has declined -12.75%, versus a 12.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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