Will 2015 Be A Better Year For Telecom Stocks?

After a weak 2014, the “Big Four” telecom companies are looking to have a bounce-back year in 2015. A recent report by Morgan Stanley analysts indicates that shareholders of Sprint Corp S, Verizon Communications Inc VZ, T-Mobile US Inc TMUS, and AT&T Inc T should keep expectations low for the upcoming year.

Growth Pressures

According to analysts, there are five key sources of growth pressure on the wireless side:

• Aggressive competition among the “Big Four”
• Total market saturation 
• Smartphone saturation reaching 70 percent
• A shift toward installment plans
• Price wars

Saturation means that any growth by these telecom companies will need to come at the expense of the others. Aggressive pricing strategies aimed at luring customers, such as Sprint’s recent campaign targeted at Verizon and AT&T customers, will continue to be a factor in the future.

Analysts believe that the telecom stocks are appropriately valued at current levels.

With the rising interest rates likely coming soon, analysts believe the appeal of owning telecom stocks for their dividends and share buyback plans will start to fade.

Stock Picks

Morgan Stanley analyst Simon Flannery explains that Verizon is the top pick among the big four because of its valuation and dividend, and says Sprint is the weakest of the four because of its weak positioning and high churn rate.

“We generally prefer the towers (Crown Castle, SBA Communications) and Canadian carriers (Rogers, BCE) given their more attractive industry structure and fundamentals.”

Morgan Stanley has Overweight ratings on T-Mobile, Crown Castle International Corp CCI, Verizon, SBA Communications Corp SBAC, Rogers Corp ROG and BCE Inc BCE.

They have Underweight ratings on Sprint and United States Cellular Corp USM.