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Telecom's twin titans -- AT&T (NYSE: T) and Verizon (NYSE: VZ) -- both reported earnings last week. Neither report was well-received. AT&T fell after reporting a sharp slowdown in signing net new customers. Verizon slipped after reporting earnings that were about in line with expectations.
Big Red booked $0.51 in per-share earnings on $26.99 billion in revenue. Post-paid net more than doubled to 906,000 and Verizon now claims 104 million wireless connections, including 88.4 million retail customers. AT&T ended Q1 with 97.5 wireless subscribers.
And yet, looking back, it seems neither company has won the hearts of buyers of Apple's (Nasdaq: AAPL) iconic iPhone. Both carriers sold millions more handsets to iAddicts in the first quarter, leaving those betting on a reversal of fortune disappointed.
So if these two are more evenly matched than pundits had suspected, the question now is which one is the better buy for long-term investors? Let's dig into the numbers:
|
Metric* |
AT&T^ |
Verizon^ |
|---|---|---|
| CAPS stars (out of 5) | ** | **** |
| Revenue growth | 1.5% | (1.4%) |
| Normalized net income growth | (10.1%) | (2%) |
| Gross margin | 57.4% | 60% |
| Return on capital | 6.9% | 7.8% |
| Levered free cash flow | $8,736 | $12,570 |
| Dividend yield | 5.60% | 5.30% |
| Forward P/E | 13.00 | 16.63 |
| PEG ratio | 2.80 | 1.73 |
Source: Capital IQ, a division of Standard & Poor's.
*All metrics calculated over the trailing 12 months.
^Except for percentages, all numbers in millions.
Three things stand out it this table:
- Both companies produce extraordinary cash flows after accounting for debt, interest, and working capital needs.
- Both pay dividends that yield well above the market average. Meaty dividends tend to pay off well for investors.
- But in terms of relative valuation, analysts expect Verizon to grow profits more than twice as fast as AT&T (excluding the effects of its planned T-Mobile merger) and Sprint Nextel (NYSE: S) over the next five years.
If you believe Wall Street is right, then Verizon is the no-brainer buy among these three. But are analysts' estimates trustworthy? I'm asking you. Please vote in the poll below and then leave a comment to let us know which telecom stock you'd buy.
You can also rate AT&T and Verizon in Motley Fool CAPS and keep tabs on the company by adding both stocks to your watchlist for free, personalized stock tracking.
