AT&T Inc. (T) and T-Mobile US, Inc. (TMUS) are two of the largest telecommunication and data communication services providers operating in the United States. T operates through Communications, WarnerMedia, and Latin America segments. TMUS provides data services, messaging, wireless devices, and other mobile communication devices under the brand names T-Mobile and Metro by T-Mobile.

The rising demand for higher data speed, because of edge computing and the growing amounts of data produced by Internet of Things (IoT) applications, is expected to propel the adoption of 5G networking solutions. In fact, the global 5G services market size is expected to grow at a 46.2% CAGR from 2021 – 2028. Also, next generation 5G technologies are being increasingly adopted by healthcare, automotive, and the energy and utilities sectors for operational efficiency and seamless experiences. The increasing implementation of 5G services should bode well for two of the leading telecom players T and TMUS.

Click here to checkout our 5G Industry Report for 2021

Over the past year, T has gained 11.3%, while TMUS has returned 46%. In terms of their past six-month’s performance, T is the clear winner with 11.2% gains versus TMUS’ 12.6% returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

This month, T introduced AT&T 5G+ at Lumen Field for customers to experience super-fast 5G services in high-traffic areas such  as at  games and other events. The increased connectivity and super-fast speeds should  enable the company to offer immersive experiences to its customers.

In April, the company joined hands with Cradlepoint to expand its  network offerings with one of the first and the most comprehensive portfolios of IT-focused 5G enterprise solutions. This enterprise-tailored solution should  provide businesses the flexibility to meet stringent security and management requirements, as well as choose the speed and solution that fits their needs.

Last month, TMUS teamed up with Zyter to provide virtual healthcare solutions to more patients and healthcare organizations. The telehealth and remote patient monitoring solutions should  enable TMUS’ customers to access faster and more reliable virtual care through familiar devices.

Recent Financial Results

In the first quarter, ended March 31, 2021, T’s Communications segment operating revenues increased 9.4% year-over-year to $19 billion, driven primarily  by smartphone sales and higher sales of postpaid data devices. The company’s operating income rose 2.3% from the prior-year quarter to $7.66 billion, while its net income increased 63.8% year-over-year to $7.50 billion. Its EPS increased 65.1% from the year-ago value to $1.04 billion. Also, its revenues under the WarnerMedia segment rose 9.8% year-over-year to $8.5 billion over this period.

TMUS reported $19.76 billion in revenues, representing a 77.8%  increase  year-over-year, in the first quarter ended March 31, 2021. Its adjusted EBITDA rose 88.4% year-over-year to $6.91 billion. However, the company’s net income declined 1.9% year-over-year to $933 million. And  its EPS came in at $0.74, representing a 32.7% decline from the prior-year quarter.

Past and Expected Financial Performance

T’s revenue has increased at a 2.8% CAGR  over the past three years. In comparison, TMUS’ revenue grew at a 23%  annualized rate over this period.

T’s revenue is expected to increase 3.6% in the current quarter ending June 30, 2021, and 1.5% in the current year. A consensus EPS estimate indicates a 2.6% increase in the next quarter, and 0.3% in the current year. In contrast, analysts expect TMUS’ revenue to increase 9.3% in the current quarter and 16.5% in 2021. But the company’s EPS is estimated to decline 44% in the next quarter and 15.1% in the current year.

Profitability      

T’s trailing-12-month revenue is more than twice that of TMUS. But TMUS is more profitable, with a gross profit margin of 58.7% versus T’s 52.7%.

However, T’s 19.4% levered free cash flow margin compares favorably with TMUS’ negative value.

Valuation

In terms of trailing-12-month Price/Sales, TMUS is currently trading at 2.24x, 68.4% higher than T, which is currently trading at 1.33x. Also, its forward EV/Sales of 3.48x is 52.3% higher than T’s 2.58x.

TMUS is also more expensive both in terms of forward EV/EBITDA (10.38x versus 8.31x) and trailing-12-month Price/Cash flow (16.24x versus 5.20x).

So, T is the more affordable stock here.

POWR Ratings

T has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. However, TMUS has an overall rating of D, which translates to Sell. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

In terms of Stability Grade, T has a B, indicating that it is more stable compared to its peers. In contrast, TMUS has a Stability grade of C.

Also, T has a B grade in terms of Growth, which is consistent with its earnings and revenue growth. TMUS’ Growth grade of C is reflective of its weaker earnings growth potential.

T has a C Momentum grade, which is consistent with its moderate price returns over the past year. In comparison, TMUS has a D grade for Momentum.

Of the 25 stocks in the D-rated Telecom – Domestic industry, T is ranked #1 while TMUS is ranked #20.

Beyond what we’ve highlighted, our POWR Ratings system has also rated both T and TMUS for Quality, Sentiment and Value. Get all T ratings here. Also, click here to see the additional POWR Ratings for TMUS.

The Winner

Both T and TMUS are good long-term investments because  the 5G buzz continues to pervade  almost every other market as organizations look for more flexible and reliable connectivity and networking options. T appears to be a better buy based on the factors discussed here. Even though TMUS has witnessed solid growth in services revenue, T’s growing customer relationships, strong postpaid phone net adds, and relative undervaluation make it a better investment option.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Telecom – Domestic industry.

Click here to checkout our 5G Industry Report for 2021

T shares were trading at $32.87 per share on Monday morning, up $0.71 (+2.21%). Year-to-date, T has gained 18.30%, versus a 13.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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