The American telecom scene has been a market of haves and have-nots, with firms like T-Mobile (NASDAQ: TMUS) crushing estimates and delivering for shareholders, even in the face of a rate-driven recession. On the flip side, telecom titans like AT&T (NYSE: T) have been dragging their feet in recent years. In this piece, we’ll look closely at the top dog, T-Mobile, and the underdog, AT&T, to determine which stock is better. While analysts generally like TMUS better, AT&T may offer higher upside potential.
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Undoubtedly, T-Mobile is a well-run dividend-free firm that’s done a marvelous job of taking share with very generous promos and retaining customers with its impressive 5G network. Indeed, the telecom industry is quite commoditized, but T-Mobile has found a way to stay ahead of its peers.
Looking ahead, the telecoms will be spending a pretty penny on the next generation of telecom tech. With rising rates, such telecoms will need to pivot to ensure every invested dollar goes to good use.
Though we’ve all grown familiar with 5G wireless technology over the years, there’s still a ways to go before nationwide speed and coverage are where they need to be to live up to the technology’s full potential. Now, without further ado, let’s take a look at the two telecom giants, TMUS and AT&T.
T-Mobile (TMUS)
T-Mobile is a winner that looks like it can keep on winning as shares look to add to impressive momentum going into year’s end. Year-to-date, the stock is up more than 24%, thanks in part to remarkably strong subscriber acquisitions.
There’s also a lot of extra value to be extracted as T-Mobile looks to impress users who migrated over from Sprint. With such a powerful network and good standing with customers, it’s hard to imagine Sprint users sprinting to a rival service.
Though T-Mobile has been aggressively investing to take share from rivals, the firm cannot afford to be flat-footed. Competitors like AT&T will be investing heavily in 5G networks to win over subscribers. Fortunately, T-Mobile’s lack of dividend will allow it the flexibility to throw everything it has into new telecom tech.
T-Mobile is also looking to push its presence into underserved rural areas to win over a new class of clientele. Undoubtedly, rural rollouts seem to be akin to grabbing the high-hanging fruit. Regardless, I think there’s some very sticky long-term growth to be had as T-Mobile looks to expand its footprint further.
At writing, shares of T-Mobile trade at 2.5x book value and 100x trailing earnings. Indeed, TMUS stock trades at a premium to the wireless telecom service peer group on both fronts.
As a growth-focused telecom with no dividends and a lofty price tag, many investors may shy away from the name, especially after such a glorious year. Still, I find it difficult to pass on the name, given its remarkable momentum and aggressive strategy that has applied so much pressure on its rivals over the years.
What is the Price Target for TMUS Stock?
Wall Street analysts are incredibly upbeat on T-Mobile stock, with a “Strong Buy” rating and 15 unanimous Buys. Looking ahead, analysts, on average, expect the stock to see 24.7% in gains over the next year, with the average TMUS stock price forecast coming at $175.86.
AT&T (T)
For investors looking to bet on an underdog with a chance for a higher potential payout, AT&T seems like an enticing play. The old-time telecom company caters to a very different crowd of investors with its colossal 6.6% dividend yield.
The rich payout is relatively safe and comes at a low price of admission. The stock trades at a mere 7.4x trailing earnings and 0.8x sales. By placing a bet on AT&T, investors are betting that the firm can stage a turnaround and gain traction over top-performing rivals like T-Mobile.
The spin-off of media assets has helped bring a new focus on the telecom opportunity. Though the new AT&T is better positioned than the one weighed down by the media segment, it’s unclear how the third-largest wireless carrier can make up for lost time against its two bigger brothers.
With T-Mobile’s aggressive investment strategy, AT&T must not only match the wireless top dog, but it also needs to raise it some amount to close the gap. Fortunately, AT&T is gaining strong momentum with its subscriber growth. The elimination of the media business will allow AT&T to be more aggressive. Though its dividend is safe, it’s arguable that a better use of the funds would be in attracting and retaining subscribers.
Of late, AT&T has been really aggressive with its promos to win over new subscribers. As AT&T continues to take a page out of T-Mobile’s playbook, Verizon (NYSE: VZ) could find itself in a tough spot.
On the Fiber side, AT&T expects to reach 30 million customers by 2025. As AT&T looks to gain market share in wireless and fiber, it may prove difficult to stop the leaner AT&T.
What is the Price Target for AT&T Stock?
Wall Street is mildly bullish on AT&T, with nine Buys and eight Holds, giving it a Moderate Buy consensus rating. The average AT&T stock price forecast of $22.59 implies 34.8% in year-ahead upside potential.
Conclusion: Wall Street is Most Bullish on T-Mobile Stock
Analysts expect great things from the two telecoms going into a recession year. Most of Wall Street prefers T-Mobile, giving it a Strong Buy rating. However, for those seeking greater income and appreciation, it’s the underdog in AT&T that may be the better Buy. It also has higher upside potential based on analyst targets.
