Value investing specialist Jason Clark, editor of The Prudent Speculator, reviews his assessment of the two leading domestic telecommunications stocks — AT&T (T) and Verizon Communications (VZ).

Integrated telecom services firm AT&T reported earnings per share of $0.90, versus the $0.94 estimate in fiscal Q3 2018. The company had sales of $45.7 billion (vs. $45.6 billion estimate).

The shares slid 8.1% following the announcement, as adjusted earnings per share missed expectations and some analysts expressed concern that the company has too many balls in the air.

AT&T CEO Randall Stephenson explained, “This year’s results, everybody knows, has had a lot of noise in them. We’ve had a significant amount of M&A. We’ve had a number of accounting rule changes imposed on us. And the third quarter was obviously particularly impacted by it being the first full quarter with WarnerMedia results in it.”

CFO John Stephens said, “Our merger synergies will also help contribute, and they remain on target, $1.5 billion in cost synergies and $1 billion in revenue related synergies on a run rate basis by the end of 2021.”

We believe that AT&T has challenges ahead stemming from the company’s numerous M&A transactions, and we think that monetizing each component is likely to be a difficult task.

Still, it’s hard to ignore the company’s 8 times forward earnings multiple and yield above 7%. While the balance sheet took a hit from the WarnerMedia deal, we think shares trade at an exceptionally reasonable level and are worth adding to a diversified portfolio. Our Target Price is $42.

Telecommunications and wireless phone service provider Verizon Communications (VZ) posted earnings per share of $1.22, versus the $1.19 estimate, in fiscal Q3 2018. VZ had revenue of $32.6 billion, versus the $32.5 billion estimate.

The shares traded higher by 4.1% following the announcement, with shareholders enthused by the fact that Verizon’s phone plans attracted 515,000 net new mobile subscribers in the quarter. Verizon also saw 54,000 net Fios subscriber additions, with the segment’s revenue increasing 1.5% y-o-y to $3.0 billion.

CFO Matt Ellis said, “We continue to lead in 4G LTE performance, while building momentum for our ultra-wideband 5G network. Our launch of the world’s first commercial 5G product signals the beginning of an era that will transform the way people live and work.”

Verizon continues to face a tough competitive landscape on the mobile phone front with margin pressure, and while the shift away from subsidies hasn’t been painless for the company or its customers, we think it’s quickly turned into a sustainable long-term model.

We are pleased that Verizon has been adding subscribers and has managed to avoid some of the expensive content battles that some of its peers have engaged in. We like the company’s significant 5G mobile phone network investments and believe that they will play a big part in keeping Verizon competitive.

Verizon trades with a forward P/E below 12 and a yield of 4.3%, metrics that are very attractive relative to the company’s historical norms. We have increased our Target Price to $67.

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