Dallas, Tex.-based AT&T Inc. (T) and Lumen Technologies, Inc. (LUMN) in Monroe, La., are two prominent players in the telecommunications industry. T is a provider of telecommunications, media, and technical services worldwide. Its services and products include wireless communications, data/broadband, Internet services, video services, local exchange services, long-distance services, telecommunications equipment, managed networking, and wholesale services. LUMN is a facilities-based technology and communications company that provides various integrated products and services to international business and mass-market customers. It offers communications, network security, cloud solutions, voice, fiber infrastructure, and managed services.
The continuing digitization of industries and remote lifestyles have driven the demand for communications services for better connectivity. Rising investments in advanced technologies should drive the growth of companies offering high-speed and uninterrupted data connectivity. The global telecom market is expected to grow at a 7.4% CAGR to $3.82 trillion by 2026. So, both T and LUMN should benefit.
LUMN stock is a winner with 2.3% price gains over the past month versus T’s 16.2% loss. But which of these stocks is a better pick now? Let’s find out.
On April 5, 2022, T and multinational aerospace and defense technology company Northrop Grumman Corporation (NOC) agreed to collaborate on research to develop a digital battle network powered by AT&T 5G and NOC’s advanced mission systems to support the U.S. Department of Defense (DoD). This solution will help the DoD connect distributed sensors, shooters, and data from all domains, terrains, and forces, further deliver low latency and cybersecurity protections of private 5G networks with the flexibility and scalability of T’s commercial 5G capabilities and offer a critical capability to support the DoD’s vision for Joint All Domain Command and Control (JADC2). This should help companies nurture their long-term partnership with DoD.
On Feb. 24, 2022, LUMN announced plans to provide high-speed edge computing infrastructure for node operations and developers on the Solana network to support its global community of blockchain validators and application programming interface providers and developers. The Lumen platform’s edge computing architecture and vast fiber connectivity provide the Solana community with a fast, secure environment, reduce latency, and save bandwidth with decentralized transactions at the edge of the network. As the demand for blockchain and other emerging technologies rises, this offering should help LUMN gain a wide market reach in the coming months.
Recent Financial Results
T’s total operating revenues for its fiscal 2021 fourth quarter, ended Dec. 31, 2021, decreased 10.4% year-over-year to $40.96 billion. The company’s adjusted operating income came in at $6.65 billion, indicating a 14.9% decline from the prior-year period. LUMN’s net income came in at $5.39 billion, compared to a $13.52 billion loss in the year-ago period. T’s adjusted EPS grew 4% year-over-year to $0.78. The company had $21.17 billion in cash and cash equivalents as of Dec. 31, 2021.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, LUMN’s operating revenue decreased 5.4% from the prior-year period to $4.85 billion. The company’s operating income came in at $1.16 billion, compared to a $1.81 billion loss in the year-ago period. Its net income came in at $508 million, compared to a $2.29 billion loss in the year-ago period. LUMN’s EPS came in at $0.50, versus a $2.12 loss per share in the prior-year period. As of Dec. 31, 2021, the company had $354 million in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, T’s EBIT has increased at a 5.3% CAGR. T’s EPS is expected to decline 31.4% year-over-year in its fiscal 2022 first quarter ended March 31, 2022. Its revenue is expected to fall 30.8% in the same quarter.
LUMN’s EBIT has increased at a 6.8% CAGR over the past three years. Analysts expect ZBH’s EPS to grow 4.5% year-over-year in its fiscal year 2022 first quarter, ended March 31, 2022. Its revenue is expected to decline 6.8% year-over-year in the same quarter.
In terms of forward EV/Sales, T is currently trading at 2.83x, which is 14.6% higher than LUMN’s 2.47x. In terms of forward EV/EBITDA, LUMN’s 6.38x compares with T’s 8.19x.
T’s trailing-12-month revenue is almost 8.6 times LUMN’s. However, LUMN is more profitable, with a 17.7% ROE versus T’s 11.8%.
Furthermore, LUMN’s gross profit margin and EBITDA margin of 56.9% and 40.7%, respectively, compare with T’s 52.7% and 33.6%.
While LUMN has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, T has an overall C grade, which equates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both LUMN and T have a C grade for Momentum, owing to their mixed price performances. LUMN stock has declined 9.6% year-to-date, while T fell 20.9%.
LUMN has an A grade for Value, reflecting its lower-than-industry valuation ratios. LUMN’s 0.69x forward Price/Sales is 56.4% lower than the 1.58x industry average. T’s B grade for Value is in sync with its relatively lower valuation. T has a 1.14x forward Price/Sales, which is 27.7% lower than the 1.58x industry average.
Among the 20 stocks in the Telecom – Domestic industry, LUMN is ranked #3, while T is ranked #4.
Beyond what we have stated above, our POWR Ratings system has also graded LUMN and T for Stability, Sentiment, Quality, and Growth. Get all LUMN ratings here. Also, click here to see the additional POWR Ratings for T.
Growing demand and rising investments in the telecom industry from businesses and governments should allow T and LUMN to grow. However, we think its higher profitability and lower valuation make LUMN a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Telecom – Domestic industry.
T shares were trading at $19.56 per share on Tuesday afternoon, up $0.10 (+0.51%). Year-to-date, T has declined -17.70%, versus a -5.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…