I am going to do a cross sectional analysis of Verizon and AT&T and determine which stock has the most upside potential based on valuation ratios, intrinsic value and future outlook.
| | AT&T (T) | Verizon (VZ) |
| Current price | 25.99 | 28.77 |
| 52 week range | 21.44 - 30.65 | 24.26 - 34.90 |
| P/E | 12.7 | 12.9 |
| P/B | 1.5 | 1.9 |
| P/S | 1.2 | 0.8 |
| Dividend yield | 6.4 | 6.4 |
| Stocks 5 year average | | |
| P/E | 17.6 | 17 |
| My intrinsic value estimate | 36.29 | 41.03 |
| Other analyst estimate | 32 | 36 |
| | |
| Future Outlook | |
| AT&T’s biggest advantage is the fact Steve Jobs chose AT&T instead of Verizon to carry the IPhone. If Verizon could go back into the past and see the hysteria and popularity of the IPhone they might change their mind and take the risk. The biggest problem facing AT&T is its’ exclusive contract with Apple. AT&T activated 1 Million IPhones in the first 3 days of the new release of the 3gs compared to 70 days to reach 1 Million for the original IPhone. This exclusive contract ends in 2010 and Verizon would love nothing more than to pencil in a deal with Apple considering 25% of IPhone users switched from Verizon. Many analysts feel that people are becoming frustrated with AT&T’s service and customer satisfaction is declining but to note recent surveys I reviewed actually showed AT&T’s customer satisfaction is increasing. With that being said, I do not foresee millions of IPhone users immediately switching their service from AT&T to Verizon because Verizon now has the IPhone. Another hurdled for Verizon is they use different technology for their service which would make Apple redesign and engineer their IPhone software. This could result in many bugs and a higher introduction cost for the Verizon IPhone. These factors could have a negative impact on Verizon and Apple which may be the reason a new exclusive contract with AT&T is in the future. | |
| Conclusion | |
| Both Verizon and AT&T are value stocks and they are in their mature market life. This means you cannot expect any significant growth for either of them. Based on valuation ratios and intrinsic value both stocks are undervalued and their valuation ratios are closely valued to each other. If Apple allows Verizon and AT&T to sell the IPhone it would in no doubt help Verizon’s stock price but it won’t have any significant impact on Verizon’s bottom line; due to switching cost and the similarity in service. Because it will not have a significant impact on VZ’s bottom line Verizon’s stock price will adjust after the optimism fades. I would suggest picking AT&T opposed to Verizon because if Apple resigns its’ exclusive contract AT&T wins and if they add Verizon it will only equal the equation and will do nothing to put Verizon ahead of AT&T. | |
did you use at&t's 52 week range for vz?
ReplyDeleteits a tight race between t & vz, but what about anticipation for LTE? vz did a test run and will begin rollout in ~ 4 mos. at&t won't even BEGIN looking at LTE until 2012; this lead in 4g will especially be pronounced in vz's mifi offering; plus vz won the last huge spectrum auction - giving them lots of firepower
goog's android team also working closer w/ verizon than any other company which makes verizon's unique licensed droid branding the most interesting iPhone competitor (at the least from a marketing perspective)
while vz's fios is expensive, ftth is much better technically than at&t's uverse (fttn, but they are beginning limited fttp too)
while they both don't make much on prepaid (reselling their wireless networks at wholesale), walmart's pre-paid offering looks to be HUGE, while vz won't profit much from it, it will grow their top line b/c it will be largely reselling vz's wireless network
also, how does at&t's enterprise business compare to vz's GLOBALLY?
Great information, I did some research on the Android and although Motorola and Google are really hyping its' release many tech geeks think its a great phone but say it still doesn't come close to the same level as the IPhone.
ReplyDeleteThe fact that Google is teaming up with Motor and Verizon only adds tension between Verizon and AT&T and now Apple. If the Droid is the must successful competitor to the IPhone why would Apple want to bring its' phone to Verizon?