AT&T (T) recently announced that it would be raising the prices on current data plans that it offers. I hear this and wonder if this move is good or bad for the stock. I soon realize that has to be good because when it comes to smartphones or tablets there really are still only two choices with reasonable coverage, Verizon (VZ) and AT&T (T). Verizon is an excellent company and has shown significant stock appreciation in the past year, especially since it has been able to start selling Apple (AAPL) products.
AT&T on the other hand has really not shown the same appreciation in price that Verizon has, even though it too is selling the same Apple products. AT&T this past quarter was denied the ability by the U.S. Government to buy T-Mobile for $39 Billion. Some see this as a serious blow to the company and its future, but I look at in a different way. AT&T was prepared to pay $39 Billion for T-Mobile and integrate its technology and company into its own. These types of integrations can take years and cost millions more on top of the original purchase price.
With AT&T not being able to do this now, it has that much more cash available on the balance sheet that can be deployed in new ways. Outside of the $4 Billion in breakup fees that it would have to pay, AT& T now has the ability to continue building out its network, improving overall quality of the network, and creating more areas that can support 4G or faster speeds. AT&T still is the only carrier that allows users to talk and surf the web simultaneously, which for some customers is a very important feature.
AT&T's stock price for the past year has not experienced the same gains that Verizon's has. I believe that this is simply because the market has been waiting on the sidelines to see what was going to happen with the potential T-Mobile purchase, which would have been a major game changer. Now that the market knows the outcome I believe the 'real' value of the company can now be reassessed and will be reflected in the stock price.
AT&T has done an excellent job in the past year to really shore up its financials and create value in the company. I think the recent dividend hike that was announced by increasing the payout to $.44/share/quarter is a great indication of the financial strength and stability of this company. At current levels this new rate brings the yield of AT&T to 6%, which is incredibly attractive compared with other dividend paying stocks out there, including Verizon, which is currently yielding around 5.3%.
The factor of a higher dividend alone should not be a determinant of whether or not to buy AT&T over Verizon, but rather a straight up comparison of each company's financials, overall value, and potential stock appreciation should be evaluated. Below is a comparison that looks at these factors and assigns a score of either + or - to each company for each factor. The better of the two companies for each factor will receive a + while the other will receive a -. After evaluating all of these factors the company with highest number of + is the winner in our telecom-company comparison.
VZ | T | |||
P/E | 44.19 | + | 45.14 | - |
Dividend Yield | 5.30% | - | 6.00% | + |
Total Revenue | $ 28.43 | - | $ 32.50 | + |
Net Income | $ (2.02) | + | $ (6.67) | - |
Cash & Equivalents | $ 13.36 | + | $ 3.19 | - |
Book Value | $ 12.62 | - | $ 17.80 | + |
Free Cash Flow | $ 3.25 | - | $ 8.27 | + |
3 | 4 | |||
Dollars denominated in Billions | ||||
After comparing AT&T to Verizon the results are very close and I will be the first to admit that this is not the most sophisticated analysis, but it allows us to take an apples-to-apples comparison of each company's recent quarterly numbers. The end results are close, but from a pure valuation and future stock appreciation standpoint I feel that AT&T is the investment choice that should be made.
