Increased spending on next-generation wireless communication setups due to the shifting preferences toward 5G networks and cloud-based technology boosts the telecom services industry. Also, with rapid digitalization worldwide and an explosion of OTT platforms, the market is expected to grow and expand considerably.
According to a Precedence Research report, the global telecom services market is expected to exceed $2.65 trillion by 2030, growing at a CAGR of 4.9%.
This year, global telecommunication services spending is expected to total $1.55 trillion, up more than 4% from the previous year, the highest annual spending figure since 2012. Moreover, investors’ interest in telecom stocks is evident from the Vanguard Communication Services ETF’s (VOX) 32.9% returns over the past year.
Against this backdrop, let’s compare two Telecom - Domestic stocks, Verizon Communications Inc. (VZ) and T-Mobile US, Inc. (TMUS), to analyze which stock holds greater potential for investors.
The Case for Verizon Communications Inc. Stock
Valued at $165.08 billion by market cap, Verizon Communications Inc. (VZ) engages in the provision of communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates in two segments: Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
VZ’s stock has gained 16.4% over the past six months to close the last trading session at $39.22. Over the past nine months, the stock has surged 14.5%.
On April 23, 2024, VZ partnered with the Detroit Lions to be the “Official 5G Network of the Detroit Lions”. As the Lions’ exclusive 5G and wireless services partner, VZ will provide reliable connectivity designed to improve venue operations and enhance the fan and stadium experience for the next three years.
On April 16, VZ announced the expansion of the company’s Equipment Asset Tracker (EAT) into Europe, including the United Kingdom, Ireland, Germany, France, Netherlands, Italy, Portugal, and Poland.
The improved EAT is VZ’s proprietary hardware device that supports its Reveal and Fleet products, helping manage equipment data, such as status, location, productivity, and health, while reducing theft and downtime for high-value and critical machinery.
In terms of forward EV/EBITDA, VZ is trading at 0.35x, 26.6% lower than the industry average of 0.48x. Likewise, the stock’s forward Price/Book multiple of 1.66 is 20.9% lower than the industry average of 2.10.
VZ’s trailing-12-month asset turnover ratio of 0.35x is 26.6% higher than the industry average of 0.48x. Further, its trailing-12-month EBIT margin and gross profit margin of 22.53% and 59.59% are 174.7% and 20.9% higher than the industry averages of 8.20% and 49.29%, respectively.
For the first quarter that ended March 31, 2024, VZ’s total operating revenue grew marginally year-over-year to $33 billion. Its operating income from the Consumer segment rose 3.8% from the year-ago value to $7.37 billion. The company’s adjusted EBITDA increased 1.4% year-over-year to $12.07 billion. Its free cash flow was $2.71 billion, up 16.2% from the prior year’s quarter.
Street expects VZ’s revenue for the second quarter (ending June 2024) to increase 1.2% year-over-year to $33 billion. For the fiscal year ending December 2025, the company’s revenue and EPS are estimated to grow 1.5% and 2.6% year-over-year to $137.03 billion and $4.70, respectively.
Moreover, Verizon surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
VZ’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VZ has a B grade for Stability. It is ranked #5 out of 16 stocks in the Telecom - Domestic industry.
Click here for the additional POWR Ratings for VZ (Value, Growth, Sentiment, Quality, and Momentum).
The Case for T-Mobile US, Inc. Stock
T-Mobile US, Inc. (TMUS) offers mobile communications services in the U.S., Puerto Rico, and the United States Virgin Islands. The company provides voice, messaging, and data services to customers in postpaid, prepaid, and wholesale and other services. It has a market capitalization of $194.71 billion.
TMUS’s stock has soared 16.4% over the past six months and 15.2% over the past nine months to close the last trading session at $164.05.
On April 25, 2024, TMUS and EQT, a purpose-driven global investment organization, announced they had entered into a joint venture with EQT's Infrastructure VI fund (EQT) that will acquire fiber-to-the-home platform Lumos from EQT's predecessor fund EQT Infrastructure III. This joint venture should bode well for both companies.
On April 24, TMUS completed a multi-year 5G network investment amounting to more than $163 million across Arkansas, creating new opportunities for local businesses, schools, healthcare providers, first responders, and anyone on T-Mobile's network via its 5G improvements.
Over the last three years, T-Mobile has invested heavily in enhancing its network infrastructure across Arkansas, expanding its network to cover over 2.9 million Arkansans with 5G connectivity and 2.2 million individuals accessing its Ultra Capacity 5G (5G UC) network.
TMUS’ forward non-GAAP PEG of 0.73x is 43.6% lower than the 1.29x industry average. However, in terms of forward EV/Sales, it is trading at 3.77x, 104.9% higher than the industry average of 1.84x. Also, the stock’s forward EV/EBIT of 17.56x is 17.8% higher than the industry average of 14.91x.
TMUS’ trailing-12-month gross profit margin and EBIT margin of 62.57% and 20.12% are 27.2% and 143.2% higher than the industry averages of 49.19% and 8.28%, respectively. However, the stock’s trailing-12-month asset turnover ratio of 0.37x is 21.4% lower than the industry average of 0.48x.
During the first quarter that ended March 31, 2024, TMUS’ total revenues declined marginally year-over-year to $19.59 billion. However, the company’s net income increased 22.4% year-over-year to $2.37 billion, and its EPS grew by 26.6% from the prior year’s period to $2. Its adjusted EBITDA rose 6.3% year-over-year to $7.65 billion.
Analysts expect TMUS’ revenue for the second quarter (ending June 2024) to increase 2.9% year-over-year to $19.76 billion. The company’s EPS for the current quarter is expected to grow 8.9% year-over-year to $2.31. However, TMUS failed to surpass the consensus revenue estimates in three of the trailing four quarters.
TMUS’ mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Quality and Momentum. TMUS is ranked #7 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see TMUS’ ratings for Growth, Stability, Value, and Sentiment here.
Verizon (VZ) vs. T-Mobile (TMUS) Earnings Analysis - Which Telecom Stock Should Investors Buy?
The telecom industry is expected to showcase resilience thanks to the growing mobile subscriber base, rising demand for high-speed data connectivity, and a significant shift toward advanced digital technologies. Both VZ and TMUS stand to capitalize on these burgeoning industry trends.
However, VZ’s lower valuation, higher profitability, and strong financials favor it as the better telecom stock pick.
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 industry here.
What To Do Next?
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VZ shares were trading at $39.08 per share on Friday morning, down $0.14 (-0.36%). Year-to-date, VZ has gained 7.12%, versus a 6.75% 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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