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You can’t give Apple (AAPL) all the credit for rising stock prices this year ahead of AT&T (T) and T-Mobile (TMUS).
I would actually argue that Apple doesn’t deserve any credit. Sorry, not sorry, Tim Cook!
Who deserves the honor? The top of every company that has focused on running more beastly telecom activities. I’m talking about a maniacal focus on profit margins, generating free cash flow and expanding potentially lucrative opportunities. And in turn, there hasn’t been any focus on doing stupid things with shareholder money, like expanding into the media sector.
First in this analytical analysis is Dallas, Texas-based AT&T, led by company veteran John Stankey.
At an investor day this week, Stankey used his signature deep voice (see video above) to outline more than $40 billion to be returned to shareholders over the next three years through stock buybacks and dividends. What really caught my attention were expectations for double-digit earnings growth by 2027.
You can’t normally hear AT&T and double-digit earnings growth in the same sentence.
Executives are betting that investments in 5G infrastructure and fiber will deliver a faster pace of revenue and profit growth than in 2024.
For Stankey, the year-end investor day marked the end of his ongoing efforts to simply become a telecom giant again.
In April 2022, AT&T closed the deal to spin off its WarnerMedia division, which it had purchased for a whopping $85 billion just three years earlier. The move combined WarnerMedia’s HBO and CNN with Discovery’s HGTV, Animal Planet, Food Network and TLC.
The deal was an unmitigated disaster for CEO David Zaslav, who heads current Warner Bros. Discovery (WBD).
Since the spinoff, AT&T has focused on reducing debt, partly due to its acquisition of WarnerMedia. In September, AT&T sold its majority stake in TV provider DirecTV to private equity firm TPG for $7.6 billion.
AT&T’s long-term debt now stands at $126 billion, down from more than $128 billion in 2022.
“I can say we’re back in growth mode,” Stankey told me of Yahoo Finance’s Market Domination. “I think we’re at the beginning of our success story, so I don’t think the mission is accomplished.”
Stankey added that he is optimistic about the Trump administration’s support for his company, especially if the tax cuts are extended.
According to data from Yahoo Finance, shares are up 42% in the past year. The stock yield yields 4.6%, compared to the yield on ten-year government bonds of 4.2%.
Interestingly, the stock only trades on a price-to-earnings ratio of 10.1 times, less than half the multiple offered by the S&P 500 (^GSPC).
“We expect share prices to revalue given the company’s unique growth algorithm and visibility of improving capital returns – which should bring investors off the sidelines,” JPMorgan analyst Sebastiano Petti said this week.
Then there’s Bellevue, Washington-based T-Mobile, led by energetic, often short-sighted CEO Mike Sievert.
At its own investor day in September, the company said it is targeting compound annual service revenue growth (CAGR) of 5% through 2027, up from the current pace of around 4%.
T-Mobile is also targeting adjusted operating profit of $10 billion through 2027 compared to 2023, with an expected range of $38 billion to $39 billion.
The company promised $50 billion in dividends and share buybacks through 2027.
“We said we would combine these two companies [Sprint and T-Mobile] and complete the most successful scaled telecom merger in the industry’s history, and we did that, and we unlocked value beyond what we promised. And now it’s time for the next chapter,” Sievert told Yahoo Finance.
Sievert added: “We wanted to unveil these plans because, after that historically successful run in recent years, investors want to know what’s next.”
T-Mobile’s $1.35 billion Mint Mobile deal closed in May, giving the company access to more value-conscious buyers.
The company is also looking to close deals for fiber optic networks Metronet ($4.9 billion), US Cellular ($4.4 billion) and Lumos ($950 million).
T-Mobile shares are up as much as 52% this year. The shares are valued more in line with recent growth, with a price-to-earnings ratio of 22 times. But that’s not exactly overstated in the context of what T-Mobile has conveyed about its future growth.
“She [T-Mobile] are in a class of their own,” said Evercore ISI analyst Kutgun Maral.
For what it’s worth, shares of Verizon (VZ) are up 13% this year. Honorable mention award.
Three times a week I have insightful conversations and chats with the biggest names in business and markets Opening bid. You can find more episodes on our videohub or check your favorite streaming service.
Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips about deals, mergers, activist situations or something else? Email brian.sozzi@yahoofinance.com.
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