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AT&T (T) vs. Verizon (VZ): Which Wireless Stock Should You Buy?

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As news began to fly earlier this week surrounding the renewed possibility of a T-Mobile (TMUS - Free Report) and Sprint (S - Free Report) merger, other wireless companies and investors took note. A deal between two of the largest U.S. wireless carriers has the potential to shake up the entire industry. 

Though the deal is still reportedly weeks away from being completed and is certainly not a lock, investors are likely waiting with great anticipation to see what comes of this possible mega-merger.

AT&T (T - Free Report) and Verizon (VZ - Free Report) , the second and first largest carriers in the U.S., might not be worried about a potential merger just yet, but investors are likely starting to consider the possible ramifications a stronger third competitor could have on both companies.

For now, let’s take a look at the two biggest U.S. wireless carriers and their fundamentals to help investors, who might soon have to weigh their options more heavily, decide which stock is the best investment right now.

AT&T Inc. (T - Free Report)

AT&T is the second-largest wireless carrier in the U.S., but its stock price has fluctuated greatly over the last year. Shares of AT&T now rest almost $5 below their 52-week high of $43.03 per share.

In AT&T’s second quarter, the company beat Wall Street expectations, posting earnings of $0.79 per share and revenues of $39.84 billion. The company’s revenues dipped slightly from last year, but the wireless carrier’s earnings experienced growth. AT&T is currently a Zacks Rank #3 (Hold) stock, but it sports an “A” grade for Value in our Style Scores system, as well as an overall VGM grade of “B.”

What’s more, many key figures support the stock’s “A” grade for Value. The company’s 3.05 PEG ratio matches the industry average, and its P/B ratio of 1.86 also hovers right around the “Wireless National” industry norm. AT&T stock is currently trading at 12.93x earnings, which is stellar compared to the overall market and looks even more favorable against the average of 35x earnings posted by its industry peers.

AT&T’s 16.42% cash flow growth also helps to show that the company is on a solid growth trajectory, especially compared to the industry’s nearly double-digit decline. However, the stock has slumped 5.27% over the past year. Furthermore, its sales numbers are projected to fall slightly this quarter and for the full-year, based on our current consensus estimates.

Within the past 60 days, AT&T has received mixed revisions for its current quarter earnings estimates, with six positive revisions and eight negative revisions. For AT&T’s full year estimates, there have been 15 upward revisions within the last 60 days, compared to four downward revisions.

However, AT&T’s earnings are expected to climb 2.28% this quarter and gain 4.08% for the year to hit $2.93 per share. AT&T has only missed earnings expectations once in the last 11 quarters.

Verizon Communications Inc. (VZ - Free Report)

Verizon, the number one wireless provider in the U.S., has shared a fate similar to its counterpart. The company matched earnings expectations in its second quarter after it posted earnings of $0.96 a share, and Verizon’s sales of $30.55 billion beat quarterly revenue projections.

Still, much like AT&T, its stock price has gone on a wild up and down ride over the last 52-weeks and has experienced a 7.57% drop since the start of the year. Shares of Verizon currently sit roughly $5 per share below their 52-week high of $54.83. However, VZ also has a “B” Value grade in our Style Scores system and is currently a Zacks Rank #3 (Hold).

Our current consensus estimates call for Verizon’s sales to see slight gains this quarter and next quarter, but dip 1.58% for the year to hit $126.89 billion. Next year, Verizon’s revenues are projected to gain 0.95%. In terms of projected EPS growth, our consensus estimates call for the company’s earnings to fall 3.19% this quarter and 1.88% for the full-year.

Verizon stock is currently trading at 13.03x earnings, which is strong compared to the market as a whole. But the company’s 3.72 PEG ratio and P/B ratio of 7.52 are both above the industry average.

Verizon has received split positive and negative earnings estimate revisions for the current quarter within the past 60 days. For the company’s full year estimates, it has received 12 upward revisions along with six negative amendments.

Bottom Line

A looming merger between the third and fourth biggest U.S. wireless carriers could pose a threat to both companies, but a more formidable opponent could also help spur one or both of these giants to innovate more quickly.

Both companies are currently Zacks Rank #3 (Hold) stocks, and it seems that, with their mixed earnings estimates revisions, the companies could stay in this position for the time being. Nevertheless, AT&T and Verizon also both present strong value for investors.

However, AT&T’s recent track record of earnings beats is a bit stronger than Verizon’s, which has failed to meet expectations in two of its last three quarters. On top of that, Verizon’s negative cash flow growth could make it harder for the company to spend more money if a T-Mobile and Sprint deal were to happen.

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