AT&T and Verizon: the two largest wireless carriers in the United States. They are a favorite choice for investors looking to buy telecom stocks, and why wouldn’t they be? The multiples are low, the dividends are big, and the moats are wide. But there are other telecom companies to look into. CenturyLink (NYSE: CTL) and T-Mobile (NASDAQ: TMUS) exist, but are not quite as noticeable.
T-Mobile is the third largest wireless carrier in the U.S. Deutsche Telekom, its majority owner, is trying to create a merger between T-Mobile and Sprint, the fourth largest wireless carrier in the U.S. However, that deal is far from finished, thanks to more than one state attorneys general. But that hasn’t stopped T-Mobile’s stock from nearly tripling in the past 5 years, thanks in part to the merger, but also T-Mobile’s steady growth.
Unlike T-Mobile and the others, CenturyLink doesn’t own a wireless business. Instead, it is one of the worlds largest wireline providers after it acquired Level 3 Communications about two years ago. But its value has dropped about 2/3 over the past five years, as their revenue has declined due to the lack of landlines.
Now, at first glance, T-Mobile is obviously the winner. But will this hold true? Let’s dig deeper into both companies before casting judgement.
Which company has the best growth?
Now, T-Mobile serves a wireless market and CenturyLink serves a landline market, so you can’t compare them directly. But, if we look at just the revenue growth, T-Mobile takes the first point. the wireline market is very sluggish, which is bad news for Century link. When it acquired Level 3 Communications, its consumer business weight dropped by 75% of its revenue while expanding overseas. Sadly, macro challenges and its lack of pricing power slow CenturyLink’s growth to a crawl.
On the other hand, T-Mobile kept growing despite the fierce competition coming from Verizon and AT&T, with the help of a million net customer additions for 26 straight quarters. It got those numbers thanks to its attractive perks like data-free video streaming and cheap prices. But it may not be clear skies for long. The progenitor of these strategies, CEO John Legere, is stepping down May of 2020.
Analysts predict that T-Mobile’s revenue will rise 4% this year, and 5% next year, while CenturyLink’s revenue will decline 5% this year and 3% next year. But T-Mobile’s figures could rise if that Sprint merger finally comes through.
T-Mobile Stock Recommendations
Nov-14-19 Downgrade HSBC Securities Buy → Hold $86
Oct-16-19 Initiated Bernstein Outperform $103
Nov-01-18 Initiated Guggenheim Buy
Jun-28-18 Upgrade Wells Fargo Market Perform → Outperform
Jun-27-18 Resumed Barclays Overweight $74
Apr-30-18 Downgrade Wells Fargo Outperform → Market Perform
Mar-13-18 Initiated Guggenheim Buy $80
Feb-09-18 Upgrade Raymond James Outperform → Strong Buy
Dec-15-17 Upgrade Macquarie Neutral → Outperform
Nov-27-17 Upgrade MoffettNathanson Neutral → Buy
Nov-09-17 Upgrade Deutsche Bank Hold → Buy $65
Oct-24-17 Initiated Societe Generale Buy $71
Apr-06-17 Downgrade Deutsche Bank Buy → Hold $68
Mar-20-17 Reiterated Barclays Overweight $65 → $70
Feb-15-17 Reiterated RBC Capital Mkts Outperform $67 → $69
Jan-11-17 Reiterated FBR & Co. Outperform $54 → $55
Jan-10-17 Downgrade MoffettNathanson Buy → Neutral
Oct-25-16 Reiterated FBR & Co. Mkt Perform $48 → $54
Aug-29-16 Upgrade Wells Fargo Market Perform → Outperform
Jul-21-16 Reiterated Jefferies Buy $45 → $55
CenturyLink Stock Recommendations
Dec-17-19 Downgrade Morgan Stanley Overweight → Equal-Weight
Dec-11-19 Initiated Evercore ISI Underperform $14
Nov-06-19 Downgrade Guggenheim Neutral → Sell $10
Aug-08-19 Upgrade Raymond James Underperform → Mkt Perform
Aug-08-19 Downgrade JP Morgan Neutral → Underweight $10
Jun-27-19 Upgrade Wells Fargo Market Perform → Outperform $12 → $14
May-23-19 Upgrade Guggenheim Sell → Neutral $10
May-09-19 Upgrade Citigroup Sell → Neutral
Feb-26-19 Downgrade BofA/Merrill Buy → Neutral $14
Feb-20-19 Downgrade RBC Capital Mkts Outperform → Sector Perform $24 → $15
Feb-19-19 Upgrade MoffettNathanson Sell → Neutral
Feb-14-19 Downgrade UBS Buy → Neutral $24 → $14
Feb-14-19 Downgrade JP Morgan Overweight → Neutral $14
Feb-05-19 Downgrade Citigroup Neutral → Sell
Jan-24-19 Downgrade Guggenheim Neutral → Sell
Nov-19-18 Reiterated MoffettNathanson Sell $16
Aug-22-18 Downgrade MoffettNathanson Neutral → Sell
Jun-26-18 Upgrade Jefferies Hold → Buy
May-16-18 Downgrade Macquarie Neutral → Underperform
Mar-13-18 Initiated Guggenheim Neutral $17
Profitability and Dividends
T-Mobile doesn’t have a dividend, unlike CenturyLink. CenturyLink pays forward a surprising 7.6%, which is understandable once you realize they only used 44% of its free cash flow (or FCF) over the past year. This means that their dividend is easily sustainable. But those gains were countered by the stock’s 12% decline during the same time period.
CenturyLink’s FCF fell 16% annually last quarter, which means that its payout ration for their cash dividend will only grow bigger. And the debt-to-equity ratio they have is much higher than T-Mobile’s, thanks to their recent acquiring of Level 3 Communications. Getting rid of debt is more important to companies than paying dividends, so that puts CenturyLink in the lead there.
Both companies are consistently profitable despite how their earnings growth looks. It looks to be slowing down, but that’s only because of the year-over-year distortions caused by all the tax reform measures in 2018. CenturyLink’s earnings are set to grow 11% this year and 9% last year, analysts say. This is due to them shying away from lower-margin equipment and cost cutting measures. Meanwhile, T-Mobile is expected to grow by 19% this year and 20% next year, even though they face stiff competition from the two biggest telecom companies.
1 Day T-Mobile Moving Averages
Exponential Moving Average (5) 77.45 Buy
Simple Moving Average (5) 77.40 Buy
Exponential Moving Average (10) 77.11 Buy
Simple Moving Average (10) 76.89 Buy
Exponential Moving Average (20) 77.11 Buy
Simple Moving Average (20) 76.67 Buy
Exponential Moving Average (30) 77.39 Buy
Simple Moving Average (30) 77.16 Buy
Exponential Moving Average (50) 77.85 Buy
Simple Moving Average (50) 78.72 Sell
Exponential Moving Average (100) 77.90 Buy
Simple Moving Average (100) 78.59 Sell
Exponential Moving Average (200) 76.25 Buy
Simple Moving Average (200) 76.85 Buy
Ichimoku Cloud Base Line (9, 26, 52, 26) 76.81 Neutral
Volume Weighted Moving Average (20) 76.48 Buy
Hull Moving Average (9) 77.71 Buy
1 Day CenturyLink Moving Averages
Exponential Moving Average (5) 13.22 Sell
Simple Moving Average (5) 13.20 Sell
Exponential Moving Average (10) 13.33 Sell
Simple Moving Average (10) 13.25 Sell
Exponential Moving Average (20) 13.57 Sell
Simple Moving Average (20) 13.66 Sell
Exponential Moving Average (30) 13.65 Sell
Simple Moving Average (30) 14.05 Sell
Exponential Moving Average (50) 13.56 Sell
Simple Moving Average (50) 13.85 Sell
Exponential Moving Average (100) 13.17 Sell
Simple Moving Average (100) 12.87 Buy
Exponential Moving Average (200) 13.29 Sell
Simple Moving Average (200) 12.17 Buy
Ichimoku Cloud Base Line (9, 26, 52, 26) 14.06 Neutral
Volume Weighted Moving Average (20) 13.65 Sell
Hull Moving Average (9) 13.20 Sell
T-Mobile has a much larger P/E ratio than CenturyLink, with T-Mobile at a P/E of 16 and Century Link at a P/E of 9. But that is mostly due to CenturyLink having more debt and depending on cost-cutting measures, as well as a sluggish revenue growth. T-Mobile has no such problems, and will still be a good investment whether or not they acquire Sprint. If you want a stock’s potential price to appreciate more than you want dividends, go for T-Mobile and ignore CenturyLink. If you want only dividends, well, there’s alway s AT&T and Verizon.