BofA reinstates coverage on top U.S. telecoms

Bank of America reinstated its coverage of AT&T (NYSE:T), Verizon (NYSE:VZ), and T-Mobile US (NASDAQ:TMUS) on Monday.

Analyst Michael Funk writes that the telecom sector is often viewed as homogeneous, with stocks being under-owned by institutional investors and overlooked as being in a sleepy, mature industry. However, he believes the top three U.S. telecoms have “unique characteristics tied to strategy, M&A, metric prioritization, return of capital, and estimate upside/risk.”

AT&T (reinstated with “buy,” $32 price objective) BofA said the company has a balanced strategy to drive growth. Given the operational momentum in its business, strong combination of wireless and fiber assets, and targeted return of capital over the next several years, the research firm expects T to trade more closely to TMUS than VZ.

“Fiber is a key element of AT&T’s long-term strategy. We believe AT&T’s combination of industry-leading fiber footprint and wireless assets positions the company well to compete in a more aggressive competitive environment,” BofA said on Monday.

Verizon (reinstated with a “neutral” $45 price objective) BofA noted that the company offers a balanced mix of premium wireless subscriber base, return of capital, and fiber strategy. Its cable MVNO has a financial hedge against cable wireless competitive intensity. In the near term, they expect Verizon to face competitive pressure that will likely increase promotional spending and impact margins.

“Verizon’s renewed focus on network quality, enhancing its wireless value proposition through the addition of Perks, and prudent approach to promotional activity should resonate with investors over the intermediate to long term,” BofA said. “However, we see risk to postpaid net add growth in the short term as cable companies ramp competitive intensity and TMUS likely follows to defend net add guidance.”

T-Mobile US (reinstated with “neutral,” $255 price objective) BofA thinks the company is executing well and leading the industry in subscriber growth, but its reliance on subscriber growth to drive earnings growth leaves it more exposed to increasing competitive intensity as the industry matures and cable takes a more aggressive approach to wireless.

“TMUS has led the industry in post-paid phone net add share, revenue and EBITDA growth, and FCF expansion,” the research firm said. “However, we believe TMUS is most likely to follow cable companies with more competitive pricing and promotional offers based on the company’s commitment to its highest ever postpaid net addition guidance of 5.5-6mn and the importance of this metric to investors.”