Scotiabank continues to see positive tailwinds for U.S. telecoms ahead of Q3 report

Scotiabank reiterated its positive view on major U.S. telecoms ahead of their third quarter report and continues to have a positive view on the industry, saying it remains supported by healthy subscriber loading dynamics and positive pricing trends.

The research firm noted that the industry is benefiting from lower interest rate expectations with continued positive money flow into the sector. “The setup in wireless is especially bullish with low industry churn, improving ARPU dynamics, low handset subsidization combined with declining capex spend,” Scotiabank said in their Oct. 18 note.

They said they remain constructive on wireless, but in cable, they expect loading to remain under pressure in the second half of this year.

For AT&T (NYSE:T), they expect Q3 revenue growth to be flat and adjusted EBITDA growth of 1.9%, driven by mobility and consumer wireline, offset by declines in the business segment and mobility equipment revenues. They forecast the company to add 450K postpaid phone subs with ARPU growth of 1.0% and “industry-leading” wireless postpaid phone churn.

Scotiabank continues to have a positive outlook for AT&T, especially into 2025, anticipating improved consumer wireline growth and continued mid-single-digit EBITDA growth in mobility to begin to materially offset legacy business services. They kept their Sector Outperform investment rating on the company.

On Verizon (NYSE:VZ), they think it would be key for the company to continue to show Y/Y improvement in postpaid phone loading and lower leverage. For Q3, they expect VZ to report 220K postpaid phone net additions, with the consumer segment returning to growth after two quarters of share loss. They expect 2025 loading to show improved resilience, with all quarters next year showing positive loading. FCF conversion and growth will be another key metric into next year.

“We believe investors are starting to put more focus on FCF generation vs. EBITDA as the industry undergoes a transformation with respect to capital spending plans and new financing structures to help fund future investments,” the firm said.

Scotiabank believes T-Mobile’s (NASDAQ:TMUS) medium-term outlook continues to be impressive with continuation of leading wireless subscriber loading, service revenue growth, and free cash flow growth compared to U.S. peers. They expect the company to report 700K postpaid phone net adds in Q3, EBITDA growth of 6.5%, and FCF generation of $4.7B. While they continue to view the long-term growth prospects as very attractive, they lowered their rating to Sector Perform from Sector Outperform.

For Comcast (NASDAQ:CMCSA), although consensus estimates should be achievable, pressure on broadband loading is likely to remain elevated due to ACP disconnections, but some offsets should be present in terms of seasonality as well, the research firm said.

“All the topline growth in the quarter is expected to come from the content and experiences segment, as subscriber losses in connectivity will counter the expected ARPU growth. On the profitability side, we should see some margin pressure given the higher costs associated with the Olympics in addition to tougher comps on new attractions for theme parks and Studios. … We continue to believe that broadband is the main driver for overall stock performance and Comcast,” Scotiabank said.