Telecom stocks were in a funk earlier this week, with shares of Verizon (VZ 0.90%), AT&T (T 0.60%), and T-Mobile (TMUS +0.06%) all tumbling on Tuesday, after comments from Verizon chief revenue officer Frank Boulben, given at a Deutsche Bank Media, Internet & Telecom Conference, caused telecommunications sectors to freak out just a little bit.
Given a few days to digest the news, however, investors seem to have concluded today that things aren't quite as bleak as they seem. As of 11 a.m. ET, all three stocks are bouncing back, with Verizon gaining 1.8%, AT&T up 1.9%, and T-Mobile doing best of all with a 2.5% gain.
NYSE: VZ
Key Data Points
How Verizon spooked the market
As Reuters reported Tuesday, Verizon exec Boulben commented that Verizon is trying to ratchet back promotional activity to shore up its profits, but some of its rivals are going in the other direction, leading to "elevated ... competitive intensity" and more price competition in the sector (read: a price war).
Verizon warned that this could lead to "soft" wireless subscriber growth for it in Q1 2025. Industry analysts were quick to chime in, predicting that mobile subscriber growth seems to be slowing in general, and warning that if telecoms focus too much on stealing customers from each other, rather than growing the market and adding value generally, this won't be great for profits.
And of course, continuing worries about the effects of President Trump's tariffs didn't help matters.
Worries subside
It's hard to see how raising tariffs on physical goods imports into the U.S., however, is going to have too much of an effect upon U.S. providers of wireless phone services. While tariffs might raise the cost of importing new phones for subscribers, they can presumably use their existing phones just as easily -- and spend the same amount of time talking, texting, and surfing the internet with them, for that matter, all of which generates revenue for AT&T, Verizon, and T-Mobile just the same as before.
At the same time, inflation worries seem to be subsiding, with the most recent inflation report coming in cooler than expected, and today's Bureau of Labor Statistics producer price index was flat against January.
Investors may also be weighing the potential for new forms of telecommunications services, notably direct-to-cell satellite communications from companies such as SpaceX Starlink and AST SpaceMobile, to help grow the telecom business generally. The easier it is to use cellphones, after all, the more likely people are going to be to use them, and to pay for them.
And with their plans to use satellites to eliminate cellphone dead zones, Starlink and AST are making this easier than ever before.
Image source: Getty Images.
Make the call: Which telecom stock would you buy?
All that really leaves us to do, therefore, as investors, is decide: Which telecom stock should I buy? Are any of them bargains?
Let's take a quick look at the numbers:
|
Price-to-Earnings |
Five-Year Projected Growth Rate |
Dividend Yield |
Net Debt | |
|---|---|---|---|---|
|
AT&T |
16.9 |
1.2% |
4.3% |
$142.5 billion |
|
T-Mobile |
25.8 |
20.3% |
1.4% |
$109.5 billion |
|
Verizon |
10.2 |
2% |
6.4% |
$167.5 billion |
Data source: S&P Global Market Intelligence
Crunching the numbers, AT&T stands out as probably the most overvalued telecom stock. While expected to outgrow Verizon slightly, AT&T pays an inferior dividend yield and costs significantly more than Verizon.
That leaves investors with two stocks to choose from. If you're more of a growth investor, T-Mobile will probably appeal to you more with its superior projected growth rate offsetting its relatively high valuation. More conservative, value-oriented and income-desiring investors, on the other hand, may find the cheap P/E ratio and generous dividend yield at Verizon more attractive.
Either way, I have to say that investors who are buying back these stocks today appear to have noticed something sooner than the rest of us: Telecom stocks, as a group, are not overpriced after all. In fact, whether you're a growth investor, a value investor, or a dividend investor, there's very likely a "right" telecom stock for you.
