In this article, I have evaluated AT&T Inc. (T) and Spok Holdings, Inc. (SPOK) to determine which telecom stock you should buy. After fundamentally comparing these stocks, I think SPOK can generate superior returns based on the factors discussed throughout this article.
Before comparing these stocks, let’s see what’s shaping the energy industry’s prospects.
Globally, digitalization is a major driver in expanding telecom services. Industries are undergoing a significant change in how they operate and provide services due to the expanding technological developments and improvements in the telecommunications network.
Therefore, the US telecommunication market is anticipated to expand at a CAGR of 1.4% to reach $356.70 billion by 2028.
Furthermore, rising spending on the deployment of 5G infrastructures due to customer inclination toward next-generation technologies and smartphone devices is driving growth in the telecom industry. Also, the soaring demand for value-added managed services is among other potential factors fueling the market growth.
As a result, global telecom services are expected to expand at a CAGR of 6.2% until 2030.
T declined 16.6% over the past nine months compared to SPOK’s 94.1% gain. T also declined 12.2% year-to-date compared to SPOK’s 113.3% returns.
Here are the reasons why I think SPOK might perform better in the near term:
Recent Developments
During the recent quarter, T announced that it had launched AT&T Internet Air fixed wireless residential service and is expected to be in 30+ locations by the end of the year.
Conversely, on October 25, SPOK declared a regular quarterly dividend of $0.3125 per share, payable to shareholders on December 8, 2023.
Recent Financial Results
For the third quarter ended September 30, 2023, T’s revenue declined marginally year-over-year to $1.06 billion. Net loss attributable to T increased 13.7% year-over-year to $36.90 million and loss per common share increased 12.7% year-over-year to $0.71. However, its gross profit increased 1.1% year-over-year to $50.91 million.
On the contrary, for the fiscal third quarter that ended September 30, 2023, SPOK’s total revenue increased 5% year-over-year to $35.43 million. Its net income increased 52.4% from the same quarter last year to $4.45 million.
Its adjusted EBITDA came in at $8.42 million, showing an increment of 24.8% from the prior-year quarter, while the net income per common share came in at $0.22, registering an increment of 46.7% year-over-year.
Past And Expected Financial Performance
Over the past year, T’s revenue increased at a 1% CAGR. Analysts expect T’s revenue to increase marginally this year as well as in the fourth quarter ending December 2023. Its EPS is expected to $2.44 this year and $0.57 in the current quarter (ending December 2023) and $0.61 in the next quarter ending March 2024.
Conversely, SPOK’s revenue has increased at a CAGR of 1.8% over the past year. Its revenue is expected to increase 2.4% this year. Its EPS is expected to be $0.67 this year and $0.06 in the current quarter (ending December 2023) and $0.09 in the next quarter ending March 2024.
Valuation
T’s forward EV/EBITDA multiple of 6.62 is lower than SPOK’s 12.90. Its T’s forward EV/Sales of 2.35x is lower than SPOK’s 2.43x.
Profitability
T's trailing-12-month gross profit margin of 59.11% is lower than SPOK’s 70.02%. In addition, T’s trailing-12-month net income margin of negative 9.29% is lower than SPOK’s 26.41%.
Thus, SPOK is more profitable.
POWR Ratings
T has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, SPOK has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. T has a C in Sentiment in sync with its unfavorable analyst estimates.
In contrast, SPOK has a B grade for Sentiment consistent with favorable analyst estimates.
Moreover, T has a C grade in Quality. its trailing-12-month gross margin of 59.11% is 20.9% higher than the 48.90% industry average. However, its trailing-12-month asset turnover ratio of 0.29x is 43.3% lower than the 0.52x industry average.
On the other hand, SPOK has an A grade in Quality. Its trailing-12-month gross profit margin and trailing-12-month asset turnover ratio of 70.02% and 0.61x are 43.2% and 18.4% higher than the industry averages of 48.90% and 0.52x.
Among the 16 stocks in the Telecom - Domestic industry, T is ranked #7, while SPOK is ranked #3.
Beyond what we’ve stated above, we have also rated both stocks for Value, Stability, Growth, and Momentum. Get all T ratings here. Click here to view SPOK ratings.
The Winner
The telecom industry is expected to keep seeing solid growth owing to surging need for high-speed data connectivity and rising spending on 5G infrastructures. Industry players such as T and SPOK should benefit.
However, SPOK seems to be the better buy here, considering its higher margins and favorable analyst expectations.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Telecom – Domestic here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
SPOK shares were trading at $17.73 per share on Friday morning, up $0.26 (+1.49%). Year-to-date, SPOK has gained 138.25%, versus a 20.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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