Telecom stocks as a group are entering 2024 as “middle-of-the-pack” players.
Relative to the broader Communication Services Select Sector SPDR Fund (NYSEARCA: XLC), telecoms as a group lagged in the past week, although T-Mobile US Inc. (NASDAQ: TMUS) advanced .60%, making it one of the sector’s top performers.
T-Mobile, along with AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), report earnings the week of January 22. Expectations are mixed when it comes to those three companies’ full-year results, but some analysts believe there’s opportunity in a largely overlooked industry.
The sector heavyweights, literally, are Meta Platforms Inc. (NASDAQ: META) and Alphabet Inc. (NASDAQ: GOOGL), which also were the sector’s biggest gainers on a one-year basis. Those two stocks participated in the great Magnificent Seven rally, but telecoms weren’t exactly standouts.
Are telecoms an undervalued industry?
While the sector comprises numerous sub-industries, including social media, streaming video, video gaming, entertainment and advertising, telecoms may represent a pocket of undervalued stocks.
Telecom has been overlooked in the tech rally, because it’s not a high-growth industry.
You might think it would be, given that broadband and wireless service have become basic utilities, but consider that for a second: How fast do utilities grow? Growth levels off when a product or service is no longer new with skyrocketing demand. That’s exactly what’s happened with telecom stocks.
Tough regulatory environment could hamper acquisitions
The industry is known for growing through acquisition. For example, long-time Sprint customers know that the carrier is now a thing of the past, having been acquired by T-Mobile in 2020.
One damper on the industry, though, is a tough regulatory environment, with Washington bureaucrats scrutinizing deals pretty closely these days.
Earnings season could be a catalyst for telecom stocks to move.
Here’s a look at those stocks and what analysts expect.
T-Mobile
Wall Street expects T-Mobile to show a year-over-year earnings increase, but a decrease in revenue when it reports on January 25 after the closing bell.
The company, like many others, is reining in expenses. It recently said it would lay off 5,000 employees, or 7% of its headcount.
T-Mobile earnings data show the company beating earnings views in recent quarters, but coming up short on the revenue side. MarketBeat’s T-Mobile analyst forecasts show a consensus view of “buy” on the stock, with a price target of $182.35, an upside of 10.59%, suggesting Wall Street believes the stock is currently undervalued.
Going forward, T-Mobile seems to be addressing the lagging revenue growth: The company said it was raising the price of home Internet for customers who don’t use its wireless service.
AT&T
AT&T is doing a bit of price increasing of its own, raising the cost of unlimited data by a buck, although customers will get more hotspot data in return.
When the company reports fourth-quarter results on January 24 ahead of the open, analysts are expecting earnings of 55 cents a share on revenue of $28.68 billion.
Those would be decreases on both the top and bottom lines.
Yet, Wall Street sees room for optimism: AT&T’s analyst forecasts reveal three upgrades since October 23. Several factors are contributing to this assessment, including outperforming rival Verizon, and the possibility that highly-levered AT&T will benefit from lower interest rates, reducing its costs of debt service.
Verizon
Like other telecoms, Verizon has an attractive dividend yield. In this case, that yield is a very healthy 6.8%.
Verizon reports fourth-quarter and full-year results on January 23 before the market’s open. Wall Street is eyeing net income of $1.07 per share on revenue of $31.51 billion, which would be year-over-year decreases.
MarketBeat’s Verizon earnings data show the company beating net income views in the past three quarters. The Verizon chart indicates that investors have been scooping up the shares at bargain prices since late October, but there’s also plenty more room to run.
In a familiar refrain, Verizon is also raising prices. Namely, it’s increasing the price of some legacy unlimited data plans by $4 a month.
Analysts believe the move is intended to nudge consumers who haven’t changed their plans in a while to upgrade to newer offerings, which no longer include bundled streaming services or international data roaming.
