At&t Vs Verizon - a Financial Comparison

AT&T VERSUS VERIZON

A FINANCIAL COMPARISON

Longli Tang

David Eric Hartman

2/22/2018

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Executive Summary

                Historically, high-dividend paying AT&T Inc. (NYSE-T) and Verizon Communications (NYSE-VZ) have acted as safe havens for investors, but both AT&T and Verizon have dropped recently, despite having forecast earnings upside in coming years thanks to the new corporate tax law. Both telecoms are among S&P 500 leaders in upward earnings revisions.  Fears of rising interest rates, though, have rattled traders on Wall Street.  Higher interest rates are a negative for dividend-paying stocks, since retail investors have more options. (Krause, 2018)

                Though both AT&T and Verizon are wireless telephone service providers, the revenue generated from wireless services has declined slightly in recent years and seems to be on a downward trajectory.  We are seeing an increased effort to add revenue streams through other venues from the big telecoms.  There is an increasingly blurred line between telecoms and technology companies.  In the wireless space there is competition from Sprint and T-Mobile, but neither of these companies offer stockholders dividends.  Moving forward, it is our belief that increasing market share and revenue will depend on the success of new operations and departments, as well as mergers and acquisitions.  The main question is, “Who will be more successful?”

                Given the general consensus that interest rates will continue to rise, special consideration should be given to the debt to equity ratios.  Verizon has been taking on a significant amount of debt to acquire Oath (AOL and Yahoo) while AT&T will in all likelihood, merge with Time Warner in the near future.  Our concern is that Verizon may have a difficult time financing its debts, especially with what we consider inferior acquisition choices.  Despite its performance over the last few years, we would be concerned with Verizon’s much higher debt to equity ratio and would recommend holding or selling Verizon stock.  We consider AT&T a strong buy and expect the stock to perform exceptionally well in late March, early April assuming that the proposed Time Warner merger is allowed to proceed.

Introduction

                When discussing the telecommunications industry AT&T Inc. and Verizon Communications come to mind as the two largest corporations in the sector.  In this financial analysis we will attempt to provide the potential investor with relevant insight into the comparison of these two telecom titans.  For brevity’s sake we will refer to these entities as AT&T and Verizon, respectively.  The recent decisions as well as long-term strategies of each corporation will be analyzed.  We will also compare the financial and operating performances.  Hopefully, this will allow our clients to make better-informed decisions.  All of the financial data was compiled by Bloomberg.