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Verizon vs. T-Mobile: Which Stock to Bet on Post Q2 Earnings?

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With second-quarter earnings drawing to a close, industry peers are doing various analysis and comparisons to gauge the underlying metrics and relative performance. Let us perform a similar comparative analysis between two stocks in the Zacks Wireless National IndustryVerizon Communications Inc. (VZ - Free Report) and T-Mobile US, Inc. (TMUS - Free Report) — to pick the better investment option.  

Earnings Scoresheet

Verizon continued its solid performance in second-quarter 2018, primarily led by the wireless business. The company recorded healthy top-line growth backed by solid service revenues. The bottom line also benefited from significant savings from the tax reform. Adjusted earnings were $1.20 per share compared with 96 cents in the year-earlier quarter, comfortably exceeding the Zacks Consensus Estimate of $1.14. Consolidated GAAP revenues increased 5.4% year over year to $32,203 million and exceeded the Zacks Consensus Estimate of $31,718 million.

T-Mobile reported healthy financial results, driven by record-high service revenues and profitability. Net income for the reported quarter came in at $782 million or 92 cents per share compared with $567 million or 67 cents per share in the year-ago quarter. The healthy year-over-year increase was attributable to the positive impacts of the adoption of the new revenue standard and hurricane-related reimbursements. The bottom line beat the Zacks Consensus Estimate by 6 cents. Quarterly total revenues increased 3.5% year over year to $10,571 million, primarily driven by growth in service revenues, partly offset by lower equipment revenues. The top line missed the Zacks Consensus Estimate of $10,636 million.

Based on second-quarter earnings, Verizon has a clear edge over T-Mobile due to a better earnings and sales surprise percentage.

Price Performance

Over the past year, Verizon has outperformed T-Mobile with an average return of 7.6% compared with a gain of 1.9% for the latter while the industry declined 6.8%.  



Guidance

For full-year 2018, Verizon reiterated its earlier guidance and continues to expect both GAAP revenues and adjusted earnings per share to increase in low single-digit percentage rates driven by expected savings from tax reform and higher cash flow from operations. Capital expenditures for 2018 are likely to be in the range of $17.0 billion to $17.8 billion.

For 2018, T-Mobile increased its expectation of postpaid net customer additions to 3-3.6 million, up from the previous target range of 2.6-3.3 million. Adjusted EBITDA is expected between $11.5 billion and $11.9 billion, up from the previous target range of $11.4-$11.8 billion, which includes leasing revenues of $0.6-$0.7 billion. The three-year (2016-2019) compound annual growth rate guidance for net cash provided by operating activities and free cash flow remains unchanged at 7-12% and 46-48%, respectively.

Estimate Revisions

Post earnings release, Verizon’s current-year estimates increased from $4.58 to $4.65 per share (up 1.5%). T-Mobile’s current-year estimates increased to $3.18 from $3.16 post earnings release (up 0.6%). With positive estimate revisions, investor sentiments appear to be more bullish on Verizon than T-Mobile with respect to current-year estimates.

Zacks Rank

Both Verizon and T-Mobile currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

To Sum Up

Based on the current scenario, Verizon seems to have trumped T-Mobile on most fronts and stands out as a better investment option. A couple of better-ranked stocks in the industry are AT&T Inc. (T - Free Report) and United States Cellular Corporation (USM - Free Report) , both sporting a Zacks Rank #1.

AT&T has a long-term earnings growth expectation of 3.4%. It surpassed estimates twice in the trailing four quarters with an average positive earnings surprise of 5.9%.

United States Cellular Corporation has a long-term earnings growth expectation of 1%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 303.6%.

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