Pitting 2 Telecom Names Against Each Other: Expect AT&T To Underperform Verizon

AT&T Inc. (NYSE: T) may trade at a discount compared to Verizon Communications Inc. (NYSE: VZ), but Drexel Hamilton analyst Barry Sine said Verizon has a better growth profile and fewer risks.

The analyst reiterated a Hold on AT&T, citing subscriber headwinds in the near term and challenges associated with its bid to buy Time Warner Inc (NYSE: TWX) in the long term.

Market Share Loss

The four national wireless carriers — AT&T, Verizon, Sprint Corp (NYSE: S) and T-Mobile US Inc (NASDAQ: TMUS) — all now offer unlimited data plans, but AT&T’s is priced the highest. A single line will cost consumers $10 more a month than with Verizon, and even greater amounts compared to the others.

The higher price point will likely be a hard sell, especially for consumers who can’t differentiate the company’s service with Verizon’s.

AT&T has also seen a slight loss in video subscribers since closing on the acquisition of DirecTV in 2015. Losses in U-Verse subscribers were not totally offset by gains in satellite.

“As these subscribers are key to realizing Time Warner synergies, this lack of momentum is a concern,” Sine said in a Thursday note. 

The Time Warner Deal

From a political perspective, it is unlikely that the Department of Justice will allow AT&T to buy Time Warner. There is hope if the Justice Department can steer clear of politics, seeing as the merger is a vertical one.

Comcast Corporation (NASDAQ: CMCSA)'s acquisition of NBCUniversal was subject to over 150 conditions; AT&T will likely face the same level of scrutiny.

But even with full synergies, Sine said, the deal could still be dilutive from an EBITDA valuation standpoint.

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