Forget Verizon, Buy These 3 Telecom Stocks Instead
The telecom industry has witnessed bullish trends amid the COVID-19 pandemic thanks to the remote working culture. And the industry is expected to witness consistent demand as the hybrid work...
The telecom industry has witnessed bullish trends amid the COVID-19 pandemic thanks to the remote working culture. And the industry is expected to witness consistent demand as the hybrid work culture continues. But the shares of Verizon Communications (VZ) currently look significantly overvalued because the company may not be able to capitalize on the industry trends. Therefore, we think investors could instead bet on quality telecom companies AT&T (T), Lumen Technologies (LUMN), and Cogent Communications (CCOI). So, let’s examine these names.
New York City-based Verizon Communications Inc. (VZ) offers communications, technology, information, and entertainment products and services worldwide. Its total operating revenues increased 4.3% year-over-year to $32.91 billion in its third-quarter (ended September 30, 2021). However, its total current assets came in at $40.28 billion for the period ended September 30, 2021, compared to $54.59 billion for the period ended December 31, 2020. Also, its 0.41% trailing-12-month asset turnover ratio is 10.7% lower than the 0.46% industry average.
The stock has declined 11.3% in price over the past year to close yesterday’s trading session at $52.78. Also, in terms of forward EV/S, the stock’s 2.95x is 19.5% higher than the 2.47x industry average. In addition, its 2.73x forward Price/Book is higher than the 2.67x industry average. So, it is wise to avoid the stock now.
However, the overall telecom industry is witnessing a surge in demand, because the COVID-19 omicron variant has delayed office reopening schedules, causing a continuation of hybrid work structures. According to a Market Watch report, the Global Telecom Services Market is anticipated to grow more than 5.4% by 2027.Therefore, we think investors looking to benefit from the industry’s growth could bet on quality telecom stocks AT&T Inc. (T), Lumen Technologies, Inc. (LUMN), and Cogent Communications Holdings, Inc. (CCOI) instead.
AT&T Inc. (T)
T provides telecommunication, media, and technology services worldwide. The Dallas, Tex.-headquartered company operates through Communications; WarnerMedia; and Latin America segments. Its key market focus areas are 5G, AT&T Fiber and HBO Max.
On December 15, 2021, T launched its new augmented reality (AR) effect on Messenger and Instagram apps. David Christopher, executive vice president, and general manager, partnerships and 5G ecosystem development at T, said, “AT&T and Meta are bringing people closer together by transforming social media from sharing moments to making memories. Our 5G paired with Meta’s AR technology makes your video calls more interactive and engaging for the whole family.”
T’s net income increased 98% year-over-year to $6.27 billion for the third quarter, ended September 30, 2021. The company’s EPS came in at $0.82, compared to $0.39 in the year-ago period. Furthermore, its total assets came in at $547.11 billion for the period ended September 30, 2021, compared to $525.76 billion for the period ended December 31, 2020.
Analysts expect T’s revenue to be $168.51 billion in its fiscal 2021. Its EPS is expected to increase 5.3% to $3.35 in the current year. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 1.4% in price to close yesterday’s trading session at $24.47.
T’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
T has a B grade for Value. In the Telecom - Domestic industry, it is ranked #3 of 20 stocks. Click here to see the additional POWR Ratings for Momentum, Growth, Sentiment, Stability, and Quality for T.
Lumen Technologies, Inc. (LUMN)
LUMN, a facilities-based technology and communications company based in Monroe, La., provides various integrated services and solutions. Its five segments are- International and Global Accounts Management; Enterprise; Small & Medium Business; Wholesale; and Consumer.
On December 13, 2021, LUMN announced that it is taking steps to enable more than 600,000 additional buildings throughout the country with faster internet speeds, up to 1 gigabit/second. Ed Morche, LUMN president of North American enterprise and public sector, stated, “We’re delivering speeds to business owners in major metro cities that desperately need faster connections to meet their demanding business challenges and compete in today’s digital marketplace.”
LUMN’s operating income increased 27.4% year-over-year to $1.13 billion for its fiscal third quarter, ended September 30, 2021. Its net income came in at $544 million, up 48.6% year-over-year. Also, its EPS was $0.51, up 50% year-over-year.
For its fiscal year 2021, LUMN’s revenue is expected to be $19.71 billion. Its EPS is expected to grow 15.6% to $1.93 in the current year. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 27.8% in price to close yesterday’s trading session at $12.68.
LUMN has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Growth and Value. LUMN is ranked #4 in the Telecom - Domestic industry. Click here to see the additional POWR Ratings for LUMN (Momentum, Stability, Sentiment, and Quality).
Cogent Communications Holdings, Inc. (CCOI)
CCOI, through its subsidiaries, provides high-speed Internet access, private network, and data center colocation space services in North America, Europe, Asia, South America, Australia, and Africa. The Washington, D.C.-based concern operates approximately 54 data centers.
For the third quarter, ended Sept. 30, 2021, CCOI’s service revenue increased 4% year-over-year to $147.93 million. The company’s net income came in at $13.32 million, compared to a $4.96 million loss in the previous period. Its EPS was $0.28, compared to an $0.11 loss per share in the year-ago period.
CCOI’s revenue is expected to be $618.22 million in its fiscal 2022, representing a 4.5% year-over-year rise. In addition, the company’s EPS is expected to increase 553.8% year-over-year to $0.85 in the current year. Over the past year, the stock has gained 24.7% in price to close yesterday’s trading session at $74.92.
It is no surprise that CCOI has an overall B grade, which equates to a Buy in our POWR Ratings system. It has a B grade for Growth, Stability, and Quality. CCOI is ranked #5 in the Telecom - Domestic industry. Click here to see the additional POWR Ratings for CCOI (Value, Momentum, and Sentiment).
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T shares rose $0.04 (+0.16%) in premarket trading Wednesday. Year-to-date, T has declined -8.39%, versus a 25.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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