Despite the lingering global economic woes, the U.S. telecom
service providers are delivering consistent growth making their
stocks attractive for long-term investments. Investors betting on
telecom stocks should take into account our 50-year discounted cash
flow (DCF) analysis for healthy returns amid stiff competition and
The top three U.S. mobile operators and service providers --
Sprint Nextel Corp.
) appear appealing in the current market turmoil. Verizon and
AT&T gained about 12% and 17%, respectively, during the first
half of the year while Sprint surged 39% reflecting its turnaround
Our DCF Analysis
If we go by our 50-year DCF analysis, Sprint is the most
undervalued stock followed by Verizon at the current levels. As of
July 2, Sprint is trading at a massive discount of 158.46% while
Verizon is trading at a substantial discount of 54%. On the other
hand, AT&T is trading at a slight premium of 22.35%.
Verizon, the U.S. wireless giant, is showing the largest
consolidated revenue and earnings per share growth, each more than
3% over the next 50 years. Wireless revenue will also be the
strongest at Verizon, increasing at a rate of 3.8% over the next 50
years. This excellent growth is reflected by the Zacks Consensus
Estimate of $2.50 for fiscal 2012 and $2.79 for 2013, representing
a significant growth of 16.17% and 11.52% year over year. Over the
past three months, these estimates showed upward movements for
Both Sprint and AT&T are expected to grow more than 3% in
revenue and 1.8% in earnings per share. Wireless revenue should
grow at a CAGR (2012-2062) of more than 3% for the two carriers. As
a result, the Zacks Consensus Estimates are trending up for
AT&T while moving down for Sprint over the past three
The estimates for AT&T have increased by nickel to $2.38 for
2012 and by three cents to $2.54 for 2013, representing increases
of 8.01% and 6.91%, respectively. Coming to Sprint, the Zacks
Consensus Estimate is pegged at a loss of $1.58 for 2012, down 7
cents over the last three months and represents a drastic decline
of 135.25% year over year. For 2013, the Zacks Consensus Estimate
is down 12 cents at a net loss of $1.13, but is showing an upside
of 28.45% year over year.
Over the next 10 years (2012-2022), revenue for these three
carriers would grow nearly 3% each. However, earnings per share
look highly attractive for Verizon with growth of 4.19% followed by
2.6% growth for AT&T. Notably, Sprint is expected to generate
negative earnings per share growth of approximately 2.0%.
Based on macro data points, these companies have a bright
outlook in the years ahead. Most of the future growth of the
telecom industry depends on the wireless business as subscribers
are discontinuing landlines and moving quickly to wireless
With the surging demand for data traffic, these carriers are
expected to fuel exceptional growth based on their entrance into
the cloud computing space and deployment of the most advanced 4G
LTE networks across several markets. Further, smartphones, in
) iPhones and
) Android-based handsets, tablets and 4G LTE will facilitate the
companies to boost market share over the next several years.
Based on the expected strong financials and growth prospects, we
find the shares of these major carriers intriguing options to play
in the broad telecom sector.
We are maintaining long-term Neutral ratings on Verizon,
AT&T and Sprint. For the short term (1-3 months), Verizon holds
the Zacks #2 (Buy) Rank while AT&T and Sprint retain the Zacks
#3 (Hold) Rank.
APPLE INC (AAPL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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