The "Big Four" wireless carriers -- Verizon (VZ) - Get Report, T-Mobile (TMUS) - Get Report, AT&T (T) - Get Reportand Sprint (S) - Get Report -- have seen a run-up in their shares since the Nov. 8 presidential election, leading investors to consider what's affecting their rising valuations.
Verizon shares closed at $50.25 on Monday, compared with a closing price of $47.65 on Nov. 8. T-Mobile finished at $63.11, compared with $50.46 on Nov. 8.
Sprint closed at $8.50 on Monday, compared with $6.27 on Election Day, and AT&T finished at $42.42, compared with $36.99. Shares of all four companies declined slightly on Monday, by less than 1%.
The main drivers for their stock appreciation include an expected rollback in regulations, heightened M&A activity and corporate tax reform, Barclays said in a note on Monday. Another factor that could influence their shares over time includes unlimited plans from all four carriers.
The potential tailwinds seem to be outweighing fundamental challenges facing the industry, Barclays said.
"For now, these positive drivers appear to be outweighing emerging headwinds as evidenced by (the) carriers' reinvigorated support of unlimited plans," Barclays analyst Amir Rozwadowski wrote. "Based on the sector's performance since the U.S. election, recent industry developments are viewed as a net benefit to the sector."
AT&T and Verizon are currently trading at about 1.5 to 2.5 times above their recent bottom levels, which can be attributed to their post- election jump, Barclays noted.
"While election-related benefits have helped the sector (overall) ... they largely seem to shield the big two from reflecting incremental pressures from a heightened competitive backdrop," Barclays said.
"T-Mobile and Sprint, on the other hand, have clearly benefited from heightened consolidation expectations with the latter accruing the largest benefit thus far."
T-Mobile and Sprint have generated a combined $15 billion in equity value creation since November, with about 70% coming from Sprint, Barclays said.
Specifically, there's an increased chance for a deal between Sprint and T-Mobile. While President Obama's FCC chief said he wouldn't permit the four main carriers to consolidate into three, new FCC chairman Ajit Pai has said he would be open to such a deal.
"I certainly don't see it as my role, I don't see it as the FCC's role, to proclaim from Olympus how many competitors will be allowed to compete in a marketplace," Pai told Bloomberg in February.
Since Sprint has benefited more than T-Mobile from the positive M&A outlook, it could be impacted more if nothing materializes -- as it would then need to shift its focus to try to outperform its peers while also continuing to cost cuts, Rozwadowski said.
He also said the improved M&A outlook increases the probability of AT&T and Time Warner (TWX) completing their merger deal by about 35%. If investors exclude this potential deal from calculations, AT&T's PE multiple has only increased by about 1.1 times since the election vs. 1.7 times with the deal factored in. If the deal goes through, Time Warner could add about 16 cents to Barclay's $3.05 2018 estimates for AT&T, the firm said.
However, if the new administration fails to implement the pro-business changes it promised on the campaign trail, then the carriers will continue to face a number of industry challenges. In that scenario, challenges for the Big Four would include a return to unlimited plans, an increase in competition and less prospects for growth with reduced M&A expectations.
"In other words, if we were to try to eliminate the benefits associated with the election, the shift in the fundamental backdrop would likely lead to multiple contraction across the space," Rozwadowski said.