Why AT&T (T) and Verizon (VZ) Are Down Today

NEW YORK (TheStreet) -- T-Mobile US Inc. (TMUS) made a presentation at the 2014 Consumer Electronics Show on Wednesday night and the stocks of both Verizon Communications Inc. (VZ) and AT&T Inc. (T) were dropping nearly 2% in afternoon trading on Thursday.

T-Mobile CEO John Lagere took the stage at CES and revealed that the company added 1.6 million subscribers in the fourth quarter of fiscal 2013 vs. a loss of 32,000 subscribers in the same quarter last year. Furthermore, Lagere addressed T-Mobile's "Uncarrier" strategy, which has no contract lock-ups, free but small data plans for tablets and more frequent mobile phone upgrades.

T-Mobile shares then spiked 1.9% on Thursday morning, but the stock was declining 0.81% to $33 in afternoon trading.

TMUS Chart

TMUS data by YCharts

AT&T was declining 2% to $33.56 in afternoon trading Thursday in the wake of T-Mobile's presentation. TheStreet research associate David Peltier offered the following commentary about the stock:

"The company just boosted its quarterly dividend for the 30th consecutive year. I like the stock for the 5.5% yield, which is the highest level in two years and nearly double the yield on the benchmark 10-year Treasury note."

TheStreet Ratings team rates AT&T as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate AT&T INC (T) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • T's revenue growth has slightly outpaced the industry average of 3.6%. Since the same quarter one year prior, revenues slightly increased by 2.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • AT&T INC has improved earnings per share by 14.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, AT&T INC increased its bottom line by earning $1.21 versus $0.66 in the prior year. This year, the market expects an improvement in earnings ($2.48 versus $1.21).
  • The net income growth from the same quarter one year ago has exceeded that of the Diversified Telecommunication Services industry average, but is less than that of the S&P 500. The net income increased by 4.9% when compared to the same quarter one year prior, going from $3,635.00 million to $3,814.00 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.89, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.38 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, AT&T INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • You can view the full analysis from the report here: T Ratings Report

Verizon, too, was dropping 2% to $47.50 in afternoon trading on Thursday after Lagere's presentation.

T-Mobile specifically targeted Sprint Corporation (S) in its termination fees program, which is constructed to ease the transition for customers who want to leave their current carriers and join T-Mobile. AT&T recently announced a similar program prior to T-Mobile but did not identify Verizon or Sprint as targets. Still, T-Mobile's tactics could force its rival carriers to make some adjustments to their business practices. TheStreet Ratings team rates Verizon Communications as a "buy" with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate VERIZON COMMUNICATIONS INC (VZ) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VZ's revenue growth has slightly outpaced the industry average of 3.6%. Since the same quarter one year prior, revenues slightly increased by 4.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 40.1% when compared to the same quarter one year prior, rising from $1,593.00 million to $2,232.00 million.
  • Net operating cash flow has increased to $11,239.00 million or 18.46% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -7.59%.
  • The gross profit margin for VERIZON COMMUNICATIONS INC is rather high; currently it is at 63.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.37% trails the industry average.
  • VERIZON COMMUNICATIONS INC has improved earnings per share by 39.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VERIZON COMMUNICATIONS INC reported lower earnings of $0.31 versus $0.86 in the prior year. This year, the market expects an improvement in earnings ($2.82 versus $0.31).
  • You can view the full analysis from the report here: VZ Ratings Report

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