AT&T vs. Verizon Stock: Which Comes Out on Top?

Advertisement

AT&T (T) and Verizon (VZ) used to be mirrors of one another, so investors would own one or the other.

AT&T Stock vs. Verizon Stock: Which Comes Out on Top?However, AT&T and Verizon have made completely different strategic moves in the last few years.

That’s why AT&T and Verizon stock are hardly identical opportunities, one is clearly superior to the other.

What Makes AT&T and Verizon Stock Different?

Verizon has divested wireline assets and spent $130 billion for full ownership of the nation’s largest wireless network. Meanwhile, AT&T continues to grow its U-verse business while also expanding into new markets like Latin America and Mexico.

That said, Verizon management recently told investors to start thinking of the company as a “GDP-plus” growth company, and that it has positioned itself as the “FedEx (FDX) of the digital age.” Verizon will find this GDP-plus growth from data and advertisements, as it monetizes new services like Go90 and incorporates AOL’s advertising platform capabilities to find revenue growth in the latter.

Beyond ads, data consumption is the biggest opportunity for VZ. Between the years of 2014 and 2019, mobile data consumption will grow at a compound annualized rate of 57% according to Cisco (CSCO). This is where Verizon will find growth, connecting devices to its network (i.e. the FedEx of the digital age).

As a result, wireless customers will continue to consume more data, and will need more expensive data packages. This should create growth for Verizon even if it cuts prices, so long as price cuts don’t exceed the rate of data consumption growth.

Albeit, AT&T has this same growth catalyst in wireless data. However, while Verizon cuts spending in wireless, and has divested $10 billion worth of wireless assets, AT&T continues to invest in U-verse, upping its broadband speeds to one gigabit per second.

Nevertheless, Verizon’s goal to become the FedEx of the digital age relates to the transformation of information across mobile and wireless networks. AT&T’s vision is much broader following the acquisition of DirecTV, focusing on quad-play bundles of wireline, wireless, TV, and broadband services.

Also, Verizon is focused on the U.S., saying it will not pursue any large acquisitions. On the other hand, AT&T has completed two acquisitions in Mexico and plans to spend several billions of dollars in the country to boost its network. It also has a spectrum network that covers 50 million households in Latin America that must be developed, thereby creating the potential for quad-play bundles there as well.

So Which Is the Better Investment?

The bottom line is that VZ and T have gone in completely different directions over the past 16 months, and it shows in what analysts expect from both companies. AT&T is expected to grow sales 12% this year and 14% next year, whereas Verizon’s revenue is expected to grow 3% this year and be flat next year.

As a result, AT&T is the faster growing company, but it is also seeing margin expansion due to synergies with DirecTV. AT&T has already said that profits will increase faster than revenue as margins go higher. Likewise, Verizon’s free cash flow is increasing as it cuts back on capital expenditures, focusing more so on its wireless business.

With that said, there is nothing wrong with VZ’s business, but given the fact that it is growing much slower, and has a smaller dividend yield at 4.8% vs. 5.6% for AT&T stock, the only way it would be as good of an investment is if Verizon stock were much cheaper than T. However, it is not.

If excluding its tower transaction, Verizon is expecting free cash flow of $13.5 billion this year; AT&T already has $14.5 billion for the past 12 months, and it expects $15 billion or more for the year. Therefore, in looking at what both companies expect for the full year, Verizon stock trades at 14 times FY2015 free cash flow, while AT&T stock actually trades below that 14 times multiple.

All things considered, AT&T is growing revenue and improving margins faster, its dividend is higher, and T is cheaper. So, there really is no reason to buy Verizon stock.

If anything, AT&T stock has solidified itself as the superior telecom investment in North America, and the only way that Verizon stock is worth buying is if it falls much, much lower.

As of this writing, Brian Nichols was long T stock.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/verizon-stock-att-stock-t-vz/.

©2024 InvestorPlace Media, LLC