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Better Buy: AT&T vs. Frontier Communications

By Rick Munarriz – Updated Apr 23, 2019 at 6:00PM

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Two out-of-favor telco giants are going in different directions these days. Let's size them up and kick one out.

There isn't a lot of love for telcos these days. Many of the industry's publicly traded players have been sluggish performers, and that's probably not a surprise as consumers cancel their landlines and embrace online connectivity tools. 

One of last week's biggest losers was Frontier Communications (FTR), shedding nearly a quarter of its value and sending the stock to an all-time low. AT&T (T -1.57%) is faring considerably better. It's trading higher in 2019, but the stock's been a market laggard over the past year. Neither stock is anything close to being a market darling, but let's see which investment has a better shot of paying off in the year ahead. 

A Frontier Communications employee holding his hardhat.

Image source: Frontier Communications.

Making the right call 

Frontier has been one of the market's biggest losers over the past two years, plummeting 96% since the start of 2017. Frontier keeps reeling, and last week's slide was probably worsened by news that it sold nearly 100 of its wireless tower assets to Everest Infrastructure Partners. 

Frontier's been in capital preservation mode since eliminating its once generous dividend early last year. Income investors are moving on, and growth investors haven't seen any real reason to buy into the stock, which has rattled off 15 consecutive quarters of deficits. Revenue has declined year over year for six consecutive quarters, and growth before that was solely the handiwork of a big wireline business acquisition that helped offset the organic decline in its operations. Consumer and commercial revenue is also slipping sequentially, another indicator that Frontier isn't turning things around anytime soon. 

AT&T isn't at its best these days, but it's far better positioned than Frontier Communications as it enters 2019. While Frontier nixed its quarterly payouts 11 months ago, AT&T is still going strong, recently boosting its dividend to stretch its streak of increases to 35 years. Its wireless business continues to grow, and even though it's losing landline and DIRECTV customers, its gutsy bet on content, by acquiring Time Warner, is paying off. Yes, AT&T is now the megacap behind Game of Thrones and DC Comics.

Ma knows best

We'll find out soon how both companies held up in the latest quarter. AT&T reports financials on Wednesday, and Frontier Communications follows with its fourth-quarter results next month.   

It's been five months since I pitted AT&T against Frontier. I sided with AT&T, as I'm doing again now, and it was the right call. Even though AT&T shares have declined 7% in that time, Frontier has taken a 63% plunge. One can argue that the best choice would've been to avoid both stocks, but if you had to buy one and short the other, the outperformance gap by going with Ma Bell is huge. 

AT&T still has a long way to go before it's truly back. Pro-forma revenue rose 0.2% in its latest quarter, the first time operating revenue has moved higher in two years. The company also has more moving parts now, making execution that much more challenging but critical. However, Frontier's fate is even more murky. The stock will be volatile, but AT&T is still the one to own in the year ahead.  

Check out the latest AT&T and Frontier Communications earnings call transcripts.

Rick Munarriz owns shares of AT&T. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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