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Employees rebuild a cell tower with 5G equipment for the Verizon network.
George Frey / Getty Images
Investors listened to telecom managers for a total of eight hours over the past week, with back-to-back-to-back investor days starting
Verizon Communications
T-Mobile VS.
and
AT&T
from Wednesday to Friday. Management teams drew up their plans for newly acquired wireless spectrum licenses and hinted their strategies for the 5G era.
AT & T’s low share (ticker: T) was the biggest winner on the investor day, but for reasons unrelated to its core wireless communications business.
Verizon
(VZ) and
T-Mobile
(TMUS) meanwhile, both stuck to their time-tested messages: “Network, Network, Network” for Verizon and “Leaving Competitors in the Dust” for T-Mobile.
Verizon was the largest publisher in the recently completed C-Band auction, with a whopping $ 53 billion in spectrum licenses and associated settlement fees. The management made that the center of its pitch on Wednesday evening. It expects to invest $ 10 billion to upgrade its network equipment to handle that spectrum, in addition to its existing annual investment budget of approximately $ 18 billion.
Verizon sees its 5G investments pay off within a few years. It said it expects to grow its telephony revenue by at least 2% in 2021, at least 3% in 2022 and 2023, and at least 4% in 2024 and beyond.
That’s not much, but it’s a decent clip for Verizon. In a saturated wireless market in the US, management is focused on moving customers to more expensive premium unlimited plans. It also pointed to new avenues for monetization with 5G, such as mobile edge computing for businesses and a wireless broadband product for home use, which the company said will cover 50 million homes by 2025.
The highlight of AT & T’s Friday morning presentation had nothing to do with telecom. The company unveiled a significantly higher subscription target for HBO Max and HBO, and managed detailed plans for an ad-supported tier and international launches. Other guidelines and comments largely echoed previous comments.
That focus on streaming seemed to be enough, with AT & T’s stock up 0.9% on Friday. The company now expects to have up to 150 million streaming subscribers by 2025, while the previous forecast – as of the end of 2019 – would be up to 90 million.
Lately, the market values streaming services based solely on multiples of revenues and subscriber growth – unlike AT & T’s slow and capital-intensive telecom companies.
Netflix
shares (NFLX) have long been traded primarily based on its subscriber numbers, while ambitious targets set
ViacomCBS
(VIAC) and
Discovery
(DISCA) recently pushed those stocks up. But AT&T may not get that much credit given its conglomerate structure.
AT&T and Verizon remain attractive to value investors – Warren Buffett’s
Berkshire Hathaway
(BRK.B) recently took a stake in the latter – and neither management team has changed that much. They are trading for about nine and eleven times expected earnings respectively and with hefty annual dividend yields of 7% and 4.4%, they certainly look attractive compared to the market. But much more growth can be found elsewhere.
About a year after the Sprint acquisition, T-Mobile’s Thursday afternoon event focused on the company’s progress with the integration of its former rival. T-Mobile management has not been shy about its ambitions to gain market share in the rural and suburbs of the US and with corporate customers – where it lags behind AT&T and Verizon today – and suggests the merger will bring even greater benefits than when it was first proposed in 2018. Wall Street was expecting revised synergy and free cash flow targets.
T-Mobile delivered results, raising its merger-related annual cost savings estimate by 25% to $ 7.5 billion, saying the integration was a year ahead of schedule. The company now sees approximately $ 65 billion in cumulative free cash flow through 2025, about 20% more than before, opening the door to a potential $ 60 billion in share buybacks from 2023 to 2025. T-Mobile’s current market value is approximately $ 157 billion.
Read more Trader: Higher prices will not kill the stock market. What to do now.
But estimates along those lines were already in Wall Street’s consensus figures. Shares of T-Mobile rose from 1.9% to 1.1% Thursday afternoon as the event dragged on.
Management execution over the next few years will be critical, with the stock priced for success at approximately 48 times expected earnings. Nonetheless, T-Mobile remains the most compelling growth story in the US wireless industry.
Write to Nicholas Jasinski at [email protected]