Consumer demand for mobile devices and wireless services will always be relatively strong. But the increasing competition among telecommunication providers has been more apparent than ever in the past few years.

That being said, the Wireless National Industry is currently in the top 36% out of 251 Zacks Industries and a long-term expansion and pivotal role wireless communication plays should leave room for multiple players.

Let’s take a look at the two largest wireless service providers going into their third quarter earnings.

AT&T (T Quick QuoteT - Free Report)

Trading 27% from its highs, investors will be watching AT&T (T Quick QuoteT - Free Report) when it reports Q3 earnings on October 28. AT&T is the second largest wireless service provider in North America offering a wide range of communication and business solutions that include wireless, local exchange, long distance, data/broadband and internet video managed networking, wholesale and cloud-based services.

The Zacks Consensus Estimate for AT&T Q3 earnings is $0.61 a share, which would represent a -30% decline from Q3 2021. Sales are also expected to be down -25% at $29.82 billion. Estimates for the period have gone down from $0.64 at the beginning of the quarter. Year over year, AT&T earnings are expected to decline -25% in 2022. Fiscal year 2023 earnings are expected to stabilize but still be down -1% at $2.49 a share. Sales are also expected to decline -25% in FY22 and drop another -3% in FY23 at $122.38 billion. Operating costs for expanding its 5G infrastructure are currently weighing on the company’s earnings and late phone payments have affected AT&T’s free cash flow and sales.

AT&T stock has fallen -37% year to date to underperform the S&P 500’s -22% and its peer group’s -9%. AT&T’s poor performance started before the current market conditions. AT&T is down -59% over the last three years to underperform the benchmark’s +25% and its peer group’s -31% decline.

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Investors will hope that AT&T can get back to its past performance. AT&T’s 20-year total return performance which includes its favorable dividend is +134%. While this still underperformed the benchmark, it crushed its peer group’s +27%.

The company’s attempt to enter the Cable and Television industry by acquiring DirectTV had an ill effect on the stock. Higher operating costs to expand into the industry on top of the $49 billion acquisition price weighed down AT&T’s earnings. Things could start to turn around for AT&T now that it has spun off DirectTV and is back to its bread in butter as a wireless service provider.

Trading around $15 a share, AT&T trades at a 6.1X forward earnings multiple, well below the industry average of 23.4X. This is also well below its decade-high of 15.3X and the median of 12.1X.

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AT&T currently holds a Zacks Rank #3 (Hold) and is starting to offer longer-term investors value at current levels. Investors will want to see if the company can post a Q3 earnings beat and possibly raise its guidance going into Q4 and FY23.

This will certainly get more investors interested in the stock again and bode well with its higher than average 7.12% annual dividend yield at $1.11 a share. The average Zacks Price Target of $23.14 also suggests 48% upside from current levels.

Verizon (VZ Quick QuoteVZ - Free Report)

Trading 33% from its highs, Verizon (VZ Quick QuoteVZ - Free Report) reports third quarter earnings on October 21. Verizon has passed AT&T as the largest wireless service provider in North America. Verizon services millions of customers nationwide through local phone service, long distance, wireless and data services.

The Zacks Consensus Estimate for Verizon’s Q3 earnings is $1.28 per share, which would represent a -9% decrease from Q3 2021. Sales for Q3 are expected to be up 2% at $33.78 billion which suggests operating costs may be wearing on the company’s bottom line.

Year over year, VZ earnings are expected to decline -4% in 2022. However, FY23 earnings are set to rise by 2% at $5.28 per share. Top line growth is expected, with FY22 sales projected to be up 2% and rise another 1% in FY23 to $138.45 billion.

It will be important to see if Verizon still has more growth ahead of it given the tougher operating environment along with the fact that it’s already the largest wireless service provider in the nation. VZ is down -29% YTD, near the S&P 500’s decline and below its peer group’s -9%. VZ is also down -40% over the last three years to underperform the benchmark’s +25% and its peer group’s -31%.

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Investors are hoping that Verizon can also get back to its strong past performance. Over the last 20 years, VZ’s total return performance including dividends is a solid +173%. While this is below the benchmark, it crushed its peer group’s +27%.

Currently trading around $37 a share, VZ has a P/E of 7.1X. This is much lower than the industry average of 23.4X. Even better, VZ trades at a discount to its decade-long highs of 19.2X and the median of 12.3X.

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Verizon currently lands a Zacks Rank #3 (Hold). Management’s ability to show the company can be profitable amid rising inflation will be key to the stock rebounding. For now, patient investors are rewarded with Verizon’s stellar 7.04% dividend yield at $2.61 per share. The average Zacks Price Target also offers 46% upside from current levels.

Bottom Line

Positive third quarter earnings reports and strong guidance could give a much needed boost to the nation’s two largest wireless service providers. Both AT&T and Verizon trade at a discount relative to their past and offer high dividend yields to reward patient investors. In addition to income in the portfolio, holding their stocks could further payoff as their low valuations also make them look poised to rebound.