AT&T seems to be closing the gap with its competitor Verizon, whose stock gains had initially outpaced AT&T’s in the early part of the year.
This divergence between the two telecom giants was short-lived, as AT&T has rebounded nicely in recent weeks. The company experienced a 1.8% increase in stock value on Thursday following an upgrade from J.P. Morgan. Year-to-date, AT&T shares are nearing a 7% gain, and its forward multiple has risen from 6.5 times to 7.9 times.
However, AT&T still has some ground to make up, as Verizon Communications has surged over 12% since the beginning of the year.
J.P. Morgan analyst Richard Choe recently upgraded his rating on AT&T to Overweight from Neutral and raised his price target to $21 from $18. Choe cites AT&T’s consistent execution in its wireless and broadband businesses, highlighting long-term growth prospects for both segments. He particularly sees significant growth opportunities in broadband due to ongoing fiber build-outs and expansion into new markets.
Choe also notes that AT&T’s dividend, currently at an impressive 6.2%, is sustainable given the completion of its investments in 5G technology. This should allow the company to generate ample free cash flow for dividend payments and debt reduction.
While some analysts have expressed concerns about AT&T losing market share in the mobile sector, Choe believes the company’s focus on improved execution and stability will drive revenue and profit growth. He is also optimistic about the broadband segment, which he expects to experience mid-single-digit top- and bottom-line growth this year.
Choe’s positive evaluation of AT&T comes just one day after Barclays downgraded Verizon, despite its strong start to the year. Analyst Kannan Venkateshwar lowered his rating on Verizon to Hold from Strong Buy with a $44 price target.
Although many analysts believe Verizon is in a better position than AT&T, Venkateshwar takes a different view, suggesting that AT&T could have a more favorable narrative in 2024.
Verizon’s Operational Trajectory
Verizon’s stock gains in 2024 have led to an increase in its forward multiple from 8 times at the beginning of January to over 9 times today, based on FactSet data. Nevertheless, both Verizon and AT&T’s forward price-to-earnings multiples are still lower than their five-year averages.
When comparing the performances of AT&T and Verizon over the long term, it is evident that they are affected by similar factors and exhibit similar trading patterns. In the last five years, both companies’ shares have fallen by more than 20%, while the S&P 500 has experienced substantial growth of nearly 80%. However, this year, both AT&T and Verizon are outperforming the overall market, which is only up by 1.6% in 2024. This trend is a departure from previous years.
If this outperformance continues in the coming months, it may indicate that a rising tide in the telecom industry is bolstering all companies involved. Although individual analysts may suggest that one of the two rivals will outperform the other, overall estimates from Wall Street analysts support the idea that there is room for multiple winners in the near term. FactSet data reveals that the average analyst price target for Verizon implies a 4.7% increase from current levels, while the average price target for AT&T predicts a slightly higher increase of 5.8%.
However, even with these projected gains, both Verizon and AT&T would still trail behind the S&P 500. The average price target for the index suggests a 10.1% increase.
In conclusion, despite some positive developments for Verizon and AT&T, it seems that certain trends remain constant in the telecommunications industry.