AT&T and Verizon battle it out for market lead

AT&T [T] and Verizon [VZ] have struggled to connect with investors so far this year.

Oct. 21, 2020

This article was originally published on OptoUnderstand What Really Moves Markets.

As of 19 October’s close, AT&T’s share price was trading at $26.88, a 26.5% year-to-date drop and a long way below the level at which it opened the year. Meanwhile, Verizon’s share price closed at $57.30 on 19 October — down 2.6% for the year. Will third quarter earnings provide more positive signals for investors? 

Verizon particularly needs good news when it reports on 21 October. Verizon’s share price began a serious downwards trajectory at the end of December 2019, and it sunk to its lowest value since 2018 when it closed at $49.94 on 25 March. 

More recently, it looked as though Verizon’s share price might recover when it reached an intraday high of $61.28 before closing at $60.61 on 3 September. This marked the stock’s highest value since the March slump. 

It’s a similar story for AT&T’s share price, which peaked on 8 January when it hit an intraday high of $39.55 before closing at $39.37. Following its January peak, the stock sunk to its lowest value since 2011 when it fell to $26.08 on 23 March before closing at $26.77. 

For the most part, AT&T’s share price has since remained flat. However, it spiked on 8 June, reaching an intraday high of $33.24 before closing at $33.23, marking the stock’s highest value since March. 

Will its upcoming earnings report on 22 October help support another rush for AT&T’s share price?

Bad second quarters

For the quarter ended June, Verizon reportedly made $30.4bn in revenues. While this exceeded the Zacks estimate by 1.8%, it marked a 5.1% drop from the previous year.

Similarly, AT&T posted revenues of $41bn for the quarter ended in June, missing the Zacks consensus by 0.5% and representing an 8.8% drop from the previous year’s revenues of $45bn. 

Verizon reported earnings of $1.18 per share during its second quarter earnings call in late July. This beat the Zacks Equity Research consensus estimate of $1.16 per share but was lower than the $1.23 earnings per share from the prior year. 

AT&T announced earnings of $0.83 per share in its second quarter earnings release on 23 July. This beat the Zacks consensus of $0.78 per share by 6.4% but marked a 6.7% drop from the previous year’s $0.89 per share.

Looking ahead, Wall Street is expecting Verizon to report earnings of $1.22 per share and revenue of $31.64bn in the third quarter, according to Zack Equity Research. Meanwhile, analysts polled by the publication expect AT&T to report earnings of $0.79 per share, with projected revenues of $42.09bn.

At least part of Verizon’s success comes from its focus on telecommunications, according to James Brumley.

“The strategy seems to be paying off, too,” Brumley wrote in The Motley Fool. “Mobile market research company M Science says Verizon accounted for more than half the 5G phones sold in the US through mid-July, for instance.” 

“Mobile market research company M Science says Verizon accounted for more than half the 5G phones sold in the US through mid-July” – James Brumley

Analysts’ outlook favours Verizon 

“Verizon also now owns more 3.5 GHz spectrum — the frequency that makes the most of 5G connectivity speeds — than any other provider. This sets the stage for prolonged growth as 5G becomes mainstream,” Brumley added. 

Shares in Verizon and AT&T both have consensus Hold ratings from the analysts at Zacks. This is the view shared by analysts polled by CNN Money.

For Verizon, this rating is held by a majority of 15 out of 24 analysts. Meanwhile 14 out of 26 analysts gave this rating for AT&T. 

According to CNN Money, the consensus price targets are also close for both companies, Among 20 analysts providing a price forecast for Verizon, the median 12-month target was $61.50 — a 7.3% uptick on Verizon’s share price as of 19 October. 

Among 22 analysts giving a price forecast for AT&T the median target was $33, representing a significant increase of 22.8%.

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