AT&T or Verizon, What’s an Investor to do?
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With investors all aflutter after the recent earnings announcement from $188 billion phone giant AT&T (NYSE: T), the company is nearing their 52-week high of $31.97. Not surprisingly there’s a bit of resistance – seems there always is before a company breaks through – but it’s likely shareholders will be smiling before the day’s out.
Clearly most are happy with AT&T’s recent quarter and there’s plenty of reason to be. While analysts were expecting earnings to be flat compared to the same quarter last year, the company pleasantly surprised generating $3.58 billion in profit compared to $3.41 billion last year. The $0.60 a share was $0.03 better than guesstimates even though revenues actually came in slightly below expectations of $31.86 billion – by a mere $40 million.
AT&T continues the transition from their landline-based business – revenues in the segment were down again compared to last year – to the all-important wireless market. Apple’s (NASDAQ: AAPL) iPhone remains a driving force for the company and the industry, a fact not lost on AT&T critics. The company activated about 4.3 million iPhones for the quarter beating rival Verizon (NYSE: VZ) by a cool 1.1 million. Even beleaguered Sprint Nextel (NYSE: S) showed a jump in iPhone users compared to last year.
As for the critics, they are quick to point out the future of wireless lies in the 4G network as more and more users become disenchanted with capacity problems. At this point at least, the iPhone isn’t geared for the higher speed broadband network, but the Verizon’s 4G LTE- as the industry standard - stands poised and ready.
There were several other positives AT&T announced, including decreasing the number of customers lost – or churn – from 1.18% in 2011 to 1% this past quarter. Certainly a good sign, particularly when investors consider the transition from the landline business. Of course Verizon proponents will counter that by quickly pointing out their customer churn dropped to 0.96% from just over 1% last year.
But AT&T wasn’t done sharing the good news – the average revenue per customer edged up over a $1 – and now sits at $64.46. And the recently announced agreement to sell their Yellow Pages unit for about $900 million in cash and debt was widely seen as a positive move that will allow the company to focus even more on their core business.
Though the 187,000 new wireless customers AT&T put on the books this past quarter was a far cry from Verizon’s 500,000+, overall the companies were essentially even. AT&T’s total of 726,000 customers was only 5,000 shy of Verizon - the other big boy on the block.
Both AT&T and Verizon offer growth and fantastic income opportunities for shareholders, each paying a 5%+ dividend. With the recent run-ups – Verizon is also nearing it’s 52-week high – the companies may appear to be too steep for investors looking for growth, but don’t be fooled, these are both sound long-term investment options. But what if you can only pick one? AT&T wins out in gross margins, which supports the recently announced flat revenue results but improved earnings. But other measures such as return on equity and price to sales are feathers in Verizon’s cap.
In the long run perhaps the biggest difference is the stronghold Verizon has on the 4G LTE network, an industry shift that’s a matter of when, not if. For that reason - along with continued strong financials - the future looks a little brighter for Verizon.
timbrugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.