Verizon unlikely to turn tide against AT&T just yet - Barclays
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AT&T (NYSE:T) "flipping" the narrative between it and longtime wireless rival Verizon (NYSE:VZ), and while that means AT&T has significantly outperformed this year, Barclays thinks that gap has room to get still wider amid Verizon's challenges.
Verizon's (VZ) weakness in its third-quarter report sent the stock near a 12-year low, but that underperformance was largely baked into expectations, analyst Kannan Venkateshwar notes.
Still, "three quarters of consumer declines still stands out in an industry where overall growth is running at record levels," and churn is also at a multi-year high, pointing to the challenges of turning around the growth profile.
There are contradictions in Verizon's growth strategy, Venkateshwar said: Gross add trends improved, but seemed to be driven by the lower $30 entry-level Welcome plan, though it raised prices across 75% of its customer base, which on average is already paying the industry's highest prices. (T-Mobile (NASDAQ:TMUS), meanwhile, is pushing more subs from lower-end plans to its highest-end Magenta Max plans.)
"Verizonâs core problem is ironically its past success," he says - and an industry-leading position in every subscriber segment, along with industry-high average revenue per user, makes it "an easy target for new entrants and its smaller telecom peers."
"Overall, we believe it is likely to be tough for Verizon to dig out of its present challenges with tactical changes in strategy and the company needs to re-adjust its position in the new competitive matrix to be on a more sustainable path," Venkateshwar said.
Still, the bank isn't going Overweight on AT&T, which it says faces industry growth risk as well as a lack of visibility on next year's pricing. Both AT&T and Verizon have seen bad debts go back to 2019 levels after "extraordinarily" low levels over the past year, which presents some more margin risk, Venkateshwar notes.
And as with other analysts, he thinks investors are unlikely to wholeheartedly join in optimism on AT&T until there are concrete signs of cash flow improvement, "given AT&T's track record."
Barclays reduced its price target for Verizon (VZ) to $37 from $40 (vs. a current $35.93), and boosted its target on AT&T (T) to $19 from $18 (now implying 9% upside).