This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Warning: Telecom Prices May Be Too High

Stocks in this article: T VZ

NEW YORK ( TheStreet) -- The U.S. Labor Department released a report on Sept. 25 saying that spending on phone services increased more than 4% in 2011 which was the fastest rate of growth since 2005. Customers want to stay connected and are activating cell phones like there's no tomorrow.

According to a recent Wall Street Journal report titled, "Cell Phones are Eating the Family Budget," more than half of all U.S. cell phone owners carry a "smart-phone" like the iPhone or a Droid. It's becoming more common for families to spend $200-a-month or more on cell phone services, and that trend looks like it may continue in the months ahead.

This has been part of the reason that the shares of the big telecom companies have been going to 52-week highs as revenues increase and so do dividend yields. The shares of the two big giants, Verizon (VZ - Get Report) and AT&T (T - Get Report) have been acting more like growth stocks instead of stodgy telecommunications companies.

By market cap the bigger of these two is AT&T. Weighing in with a $220 billion market cap, T hit its 52-week high of $38.58 on Sept. 21 and has barely corrected. With its close Wednesday of $38.08 it's been afforded a price-to-earnings ratio of over 50 and a forward P/E of almost 15.

Perhaps we shouldn't be surprised. According to The Journal article, the trend of multi-cell phone families is expanding so fast that big telecoms like AT&T and Verizon Wireless brought in $59 billion in revenue in 2011. That's a big jump over the $22 billion in revenue they earned in 2007.

As you can see from the 5-year chart below, revenue-per-share growth has been one of the big drivers of share price growth. Selling services like mobile email and Web browsing is a very lucrative business.

T Chart T data by YCharts

Cell phone services are one of the household spending categories that actually accelerated since the beginning of the Great Recession. According to the Labor Department, spending on "telephone services" has increased by 10% for households in America since 2007.

Although last quarter's revenue growth was less than 1% year-over-year for AT&T, that still means their trailing-12-months revenue-per-share was a whopping $21.57. Their operating cash flow (trailing 12-months) was $35.35 billion dollars and their levered free cash flow was $9.69 billion.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs