The Best Wireless Stocks: AT&T, Verizon, Sprint, And T-Mobile Ranked

The U.S. wireless industry is a gold mine. Consumers love their smartphones and other mobile devices, and their mobile applications, web browsing, and text messaging requires data. Plus, as so many of us are extremely reluctant to go without our devices, wireless service providers hold pricing power and are resistant to economic downturns.

This means the major wireless service providers are highly profitable. The top two operators, Verizon Communications (VZ) and AT&T (T) rule the roost, while the two smaller providers—T-Mobile US (TMUS) and Sprint Corporation (S)—are trying to catch up.

Verizon and AT&T are top picks for income investors, due to their high dividend yields. Both stocks can be found on our list of 138 dividend-paying telecommunications stocks.

Meanwhile, Sprint and T-Mobile have agreed to a merger, which if successful, could give them the resources necessary to compete more effectively with AT&T and Verizon.

This article will discuss the top 4 wireless service providers in the U.S., based on the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation multiple change to compute total returns.

Wireless Provider #4: Sprint Corporation

  • Expected Annual Returns: -5%

Sprint Corporation came together with the merger of Sprint and Nextel in 2005. Since then, the company has taken many twists and turns. After multiple acquisitions and spin-offs, SoftBank acquired 70% of Sprint Nextel in 2012, and the company name was changed to Sprint Corporation. Today, Sprint is the #4 wireless carrier in the U.S., with roughly 55 million customer connections. Its various brands include Sprint, Virgin Mobile USA, Boost Mobile and Assurance Wireless.

On 5/2/18 Sprint released fourth-quarter and full-year 2017 financial results. The company had postpaid phone customer additions of 606,000 for the full year. The company generated net income of $7.4 billion, although $7.1 billion of the net income was due to favorable tax changes. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $11.1 billion in 2017. The company expects adjusted EBITDA to grow 2%-6% in fiscal 2018, to $11.3 billion-$11.8 billion.

We do not expect Sprint to generate positive returns over the next five years, as the company’s financial condition is highly challenged. Sprint has consistently reported losses over the past 10 years. It has a high level of indebtedness, and the company needs to reinvest billions of cash flow in its network, to keep up with AT&T and Verizon.

And, with the U.S. wireless market heavily saturated at this point, Sprint’s wireless service revenue is not growing.

S Wireless

Source: Investor Update, page 11

Going forward, the best chance for Sprint to turn itself around would be the definitive merger agreement with close competitor T-Mobile. This would bring together the #4 and #3 wireless providers. Their combined financial resources and scale would allow them to more heavily invest in next-generation technology, such as 5G rollout, and streamline operations to generate efficiency gains. However, the deal faces a tough path toward regulatory approval, meaning it is not a certainty yet.

Sprint’s financial condition is a concern, particularly if interest rates rise. The company has a credit rating of ‘B’ from Standard & Poor’s and ‘B2’ from Moody’s. These are considered below investment-grade, meaning Sprint already incurs higher debt costs than higher-quality borrowers. In addition, the company has significant debt maturities coming up—including $12.2 billion of debt maturities through 2020.

From a valuation perspective, Sprint is difficult to analyze. The company has not reported positive earnings-per-share since 2008, which makes it impossible to generate a price-to-earnings ratio. Sprint is expected to be barely profitable in 2018. Even with 10% assumed earnings growth each year, Sprint is likely to generate poor returns for shareholders. The stock is not likely to be rewarded with an extremely high price-to-earnings ratio, based on its weak balance sheet, limited growth opportunities, and lack of a dividend.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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