This story, originally published July 2, has been updated to clarify some details and add comment from AT&T and others.
NEW YORK ( TheStreet)--AT&T's (T - Get Report) stock has been rising lately in anticipation of its acquisition of DirectTV (DTV - Get Report), while investors have been dumping rival Verizon (VZ - Get Report). But it's unclear how long the different performances in the two stocks may last.
Since May 1, 2015, shares of Dallas-based AT&T are up 3%, while New York-based Verizon, normally a stronger performer than its peer, has fallen 7% to $47 a share. The S&P 500 is down less than one percent during the same period.
Within the last two months, telecom investors attracted to the dividends of both companies may have pulled out of Verizon and into AT&T in anticipation of the completion this month of the $48.5 billion DirecTV merger, said Spencer Kurn, analyst at New Street Research.
New Street is "neutral" on both AT&T and Verizon, with a price target of $32 on AT&T and $45 on Verizon. The merger will allow AT&T to account for DirecTV's satellite equipment, set-top boxes and the like, as capital expenditures and is expected to lift the combined company's earnings per share, Kurn said.
AT&T is also receiving a wave of analyst upgrades because of anticipated synergies with DirecTV, the company's expansion into Mexico, dividend coverage and expected improvement in wireless in the second quarter, noted a company spokesperson.
Normally, AT&T is the less attractive investment between the two big phone companies, said Philip Van Deusen, director of research at Tigress Financial Partners, because of pension and healthcare expenses that Verizon handles more efficiently. Tigress has an "underperform" rating on AT&T and "neutral" outlook on Verizon.
Verizon is credited with having the best network in the US telecom arena, according to research firms like RootMetrics, which tests for speed, quality of calls data and text and reliability of wireless networks. But AT&T is "on the uptick" in the first half of 2015, noted Annette Hamilton, director of marketing communications at RootMetrics, receiving higher marks for thing like speed than it once had.
A spokesperson for AT&T said Verizon's network superiority is "debatable." A Verizon spokesperson said all third party analyses agree on its network performance advantage.
The acquisition of spectrum is vital to telecom carriers, and AT&T purchased the greatest share in the 2015 government auction early this year, spending $18.2 billion. Verizon spent $10.3 billion. The process doubled expectations of the Federal Communications Commission.
JPMorgan wrote in a note Monday that it's bullish on AT&T in the short term.
"We expect AT&T to close the DirecTV deal around July 15 and host an analyst day after earnings, both of which could be a positive catalysts for the stock," JPMorgan analyst Phillip Cusick said. "We could see upward earnings revisions as DirecTV synergies and opex benefits from Project Agile as well as the ramp down of Project VIP are included in projections."
Even so, competition among telecom carriers clouds AT&T's longer-term outlook, Cusick continued. "AT&T's underlying business trends remain soft and the competitive intensity in wireless and wireline are high."
Kurn warned that AT&T's advantage over Verizon may be short lived, since no negative catalyst has affected the New York telecom's stock performance. On the whole, Verizon has better subscriber growth than AT&T, Kurn said. The fundamentals of both companies remain the same, Kurn added. He predicted that after the AT&T-DirecTV integration, Verizon's stock may experience an uptick while AT&T may see a "modest" decline.
Van Deusen is also cautious about AT&T's stock in the long run because of higher expenses than peers and a market in which T-Mobile and Sprint have engaged in aggressive price cutting.