AT&T vs. Verizon, Which Telecom Stock Should You Own?

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In the Diversified Communication Industry, there are several major players, but two that consumers know very well are AT&T T and Verizon VZ. Whether they are your cellular provider or not, almost everyone has seen a commercial or two from either company, or many may remember Verizon's memorable "Can you hear me now?" commercials from the early 2000's for example.

Due to increased competition in the space and consolidation between large companies in the telecom industry and the media industry, both companies are being forced to adapt and innovate to continue their success levels. With so many changes and adjustments being made in the industry and by its players, which stock is the one to own now?

The Industry

In order to help answer this question, one must take a look at the industry that the two companies compete in. The Telecom Industry is saturated with providers. There are no longer new and untapped markets for the companies to go enter, as almost everyone has a provider already, making the industry highly price sensitive. Each company is competing against one another to gain one another's market share of consumers.

Mergers and acquisitions have been a common occurrence as of late in the Telecom industry, and both AT&T and Verizon have or will have their involvement in this trend. Verizon took over Vodafone Group Plc VOD's 45% stake in Verizon wireless, as well as acquired AOL Inc. AOL.

AT&T on the other hand acquired Grupo Lusacell, the third largest wireless operator in Mexico along with all telecom assets of NII Holdings Inc., also in Mexico. AT&T also reached a deal to acquire DIRECTV DTV for $48.5 billion, which should go through by the end of June 2015, contingent on the Federal Communications Commission's approval.

Growth Possibilities

Although the industry has saturated the market for mobile phone service there are still several platforms that if exploited could provide growth and increased revenues for companies in the industry, especially for Verizon and AT&T. Acquiring or merging with other companies, especially ones in other industries, such as AT&T acquiring DIRECTV, will provide growth and broaden where revenues stream from, but it isn't the only opportunity for these companies to grow.

One place that telecom companies can look to create growth and revenue increases is in the music and mobile streaming market. The recent and continuing increases in music and video streaming by consumers on their mobile devices have been a source of growth for companies in the industry.

According to the 2014 Global Mobile Consumer Survey from Deloitte, there was a 19 percent increase among US consumer streaming of television or film in the last year, The survey also showed a 30 percent increase in year over year growth of music streaming. Also, the number of consumers surveyed who said they streamed media nearly doubled.

Smartphone owners are ready and looking for Smart Home and Connected Car Solutions. 65% of these Smartphone owners said they would find value in a Smart Home connection, and 72% said they would find value in Connected Car solutions according to Deloitte's Mobile Survey.

If telecom companies can provide these sought after solutions and link consumer's homes and cars with their phones, it could provide a major boost in growth and revenue, especially with such a large percentage of Smartphone users seeing value in the possibility.

A growing market and one that telecom companies such as AT&T and Verizon can benefit from is Mobile Payments. Current Capabilities of the space do not meet consumer interest. Also according to Deloitte's mobile survey, 48% of consumers would like to use their phones for in-store payments, compared to just 7% currently doing so. Closing the gap between those who want to and those who do use Mobile Payment should without a doubt be a goal for telecom companies that are looking for diversification and growth in revenue streams.




Its net margin is also very solid, along with its return on equity. Although most of Verizon's numbers are better than AT&T's, it still has several numbers that are solid. The net margin and return on equity are both positives for AT&T, as well as the stocks dividend percentage, which is 5.41%. Based on the graphic above, one can see that Verizon's numbers show that is poised for a year of strong growth moving forward. The stock has a projected sales growth of 3.22% for the current year, as well as projected EPS growth of 14.56%.

Bottom Line

The Telecom Industry is made up of a multitude of companies, some large and others not so much, with diverse revenue streams and each company has its own strengths and weaknesses. This variety and diversification is a positive for the industry though, as it causes a fair amount of competition between each company, as well as drives each one to work hard, smart, and cost effectively, causing growth and innovation.

With pressure from competitors to grow and the many opportunities to do so, the players of Telecom are primed for success moving forward. This industry, and more specifically AT&T and Verizon Communication, is and are investment portfolio considerations that every investor should keep their eyes on when looking to have success in today's market.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report

AT&T INC T: Free Stock Analysis Report

VERIZON COMM VZ: Free Stock Analysis Report

VODAFONE GP PLC VOD: Free Stock Analysis Report

AOL INC AOL: Free Stock Analysis Report

DIRECTV DTV: Free Stock Analysis Report

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