We recently compiled a list of the 10 Best Telecom Stocks To Buy Right Now. In this article, we are going to take a look at where AT&T Inc. (NYSE:T) stands against the other telecom stocks.
The telecommunications industry is at a critical juncture as it navigates an era of rapid technological advancement and escalating data demands. Over the coming years, global data consumption is expected to surge dramatically, nearly tripling from 3.4 million petabytes (PB) in 2022 to 9.7 million PB by 2027. This massive increase is driven largely by the growing consumption of video content, which will account for approximately 79% of this data. Despite this exponential rise in data usage, telcos face a challenging financial landscape. Revenue growth from internet access is projected to remain modest, with a compound annual growth rate (CAGR) of only 4%, reaching $921.6 billion by 2027. This slow revenue growth contrasts with the substantial capital required for network upgrades and expansions.
According to PWC report “Perspectives from the Global Telecom Outlook 2023–2027”, to meet the rising data demand and stay competitive, telecommunications companies will need to invest heavily in infrastructure. The ongoing transition to 5G technology and the deployment of other advanced network standards will drive significant expenditures. By 2027, telcos are expected to invest around $342.1 billion in network enhancements. This includes the expansion of fibre networks and the adoption of Open Radio Access Networks (Open RAN), which aim to improve interoperability among devices and providers.
In response to these evolving demands, telcos are increasingly focusing on diversifying their service offerings beyond traditional connectivity. The Internet of Things (IoT) represents a major growth opportunity, with expectations for a substantial rise in connected devices. The number of IoT devices is projected to increase from 16.4 billion in 2022 to 25.1 billion by 2027. This growth will be driven by innovations in various sectors, including healthcare, where medical IoT devices are anticipated to double, reflecting a CAGR of 16.7%. The expansion of private 5G networks and edge computing services will further enhance the capabilities of telcos to meet the diverse needs of their business customers.
The shift towards advanced technologies like 5G presents both opportunities and challenges. The initial wave of capital expenditures on 5G infrastructure is nearing its peak, with future investments likely to focus on optimizing and scaling existing networks rather than extensive new deployments. This trend is expected to impact the financial strategies of telecom companies, as they will need to manage substantial investments while also seeking efficiencies and cost control. The growth in capital expenditure for 5G and fibre infrastructure will be accompanied by a rising focus on operational efficiency and monetization strategies.
In addition to network enhancements, telcos will need to foster collaboration across the broader ecosystem to thrive in this evolving landscape. Partnerships with technology providers, cloud services, and other stakeholders will be crucial for developing and delivering advanced services. Companies that excel in integrating these diverse technologies and creating seamless solutions will be better positioned to capture emerging opportunities in areas such as private networks and digital infrastructure.
The telecom industry is entering a period of significant transformation, characterized by rapid technological advancements and evolving consumer demands. To succeed, telcos must navigate the complex challenges of heavy investment requirements while exploring new growth avenues. Strategic partnerships, operational efficiency, and a focus on innovative technologies will be essential for companies aiming to excel in this competitive and dynamic environment.
Our Methodology
We used telecom sector ETFs plus online rankings to compile an initial list of the best telecom stocks to buy now. We narrowed our list to the 10 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of August 13. Note: We only included companies whose primary business is in the telecom industry.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A person in the field using their smartphone to connect to wireless communication services.
AT&T Inc. (NYSE:T)
Average Analyst Share Price Target Upside: 14.88%
Average Analyst Share Price Target: $22.33
Number five on our list of ten best telecom stocks to buy right now is AT&T Inc. (NYSE:T). AT&T Inc. (NYSE: T) has an average analyst price target of $22.33, indicating a potential upside of 14.88%. On July 24, AT&T Inc. (NYSE:T) reported earnings with normalized EPS of $0.57, in-line with expectations. Revenue came in at $29.80 billion, falling short of forecasts by $184.01 million. Despite the revenue miss, AT&T Inc. (NYSE:T) solid EPS performance and ongoing strategic initiatives suggest a focus on long-term growth and operational improvements. AT&T Inc. (NYSE:T) has a forward dividend yield of 5.71% with an annual payout of $1.11 and a payout ratio of 48.26%. AT&T Inc. (NYSE: T) has delivered a year-to-date price return of 16.33%, outperforming the S&P 500’s 13.93% return.
Miller Value Income Strategy made the following comment about AT&T Inc. (NYSE:T) in its Q3 2023 investor letter:
“Our third-largest holding at quarter end was AT&T Inc. (NYSE:T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash flow, implying a forward free cash flow yield north of 15%. Just under half of free cash flow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash flow model will suggest that intrinsic value for shares begins with a “2,” suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio.
AT&T looks particularly attractive when compared to some of the larger names dominating the S&P 500. Compare the stock to Apple, for instance, whose revenues and profits are likely to shrink this year, even as it trades at 29x this year’s earnings estimate. The ongoing return to rationality and capital accountability, along with extreme valuations in the megacap tech stocks, have us more excited about our portfolio’s prospects than we can remember for quite some time. As always, we remain the largest investors and welcome any questions or comments.”
Overall T ranks 5th on our list of the best telecom stocks to buy. While we acknowledge the potential for T as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than T but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
